Mike Philbrick’s Top Picks: October 1, 2021

Mike Philbrick, Managing Director, ReSolve Asset Management

FOCUS: Exchange traded funds


MARKET OUTLOOK:

Strained valuations in many stock and bond markets are prompting investor advisers and dispatchers to look further to meet investor return targets. Many investors find themselves recommending portfolios that are uncomfortably off the risk curve, stretching towards higher returns and increasing exposure to pro-cyclical assets via asset classes such as private equity, loans banking and exposure to high yield bond markets.

On top of that, there is a growing risk that the low correlation between stocks and government bonds will start to shift and in turn reduce the densification advantage that risk-adjusted investors have enjoyed over the past 30 years. past years in the ubiquitous 60-40 equity portfolio.

Thoughtful investors, advisers and distributors are evolving their approach by replacing part of their exposure to stocks and / or bonds with asset classes and alternative uncorrelated strategies, as liquid alternative strategies have become more widely available to investors.

In practice, this approach is often accompanied by Fear of Missing Out (FOMO), as the returns on these portfolios are likely to deviate significantly from traditional portfolios. Although alternative exposures are expected to introduce diversification benefits, many investors abandon diversifiers before they have achieved the expected benefits. This behavior is particularly common in times when traditional portfolios have dominated for years in a row.

In order to help investors, allocators and advisors navigate successfully this arena of portfolio building, we have published a free report titled BACK STACKING: STRATEGIES TO OVERCOME A LOW-PERFORMANCE ENVIRONMENT where to describe the problem in more detail and provide a thoughtful framework that investors can use to build a more diverse and behaviorally robust portfolio.

BEST CHOICES:

Mike Philbrick’s Top Picks

Mike Philbrick, CEO of ReSolve Asset Management, discusses his top picks: HURA, KSA, and ETHQ.

The Horizons Global Uranium Index ETF (HURA TSX)

It is the first ETF in Canada to offer direct exposure to the global uranium industry. HURA is designed to provide exposure to the performance of a basket of issuers which (a) are primarily involved in the uranium mining and exploration industry; or (b) invest and participate directly in the physical price of uranium. HURA provides exposure to companies directly responsible for uranium mining, with up to 25 percent of the portfolio providing exposure to the price of uranium. These two segments of the supply chain would likely experience the greatest growth in value if the global demand for uranium increased.

IShares ETF MSCI Saudi Arabia (KSA NYSE)

Saudi Arabia is the largest economy in the Middle East and the seventh largest stock exchange in emerging markets. The FTSE indices have approved inclusion in their indices, and MSCI EM and ACWI have included it in their indices in 2019. This could potentially attract billions of additional global asset flows to the Saudi stock market. This stock market has an unusually low correlation with equities in North America and other emerging economies, providing significant diversification, including one currency, as the Saudi riyal is pegged to the US dollar.

3iQ CoinShares Ether ETF (ETHQ TSX)

This is intended to provide unitholders with exposure to the digital currency ether in US dollars. Ether is the second largest cryptocurrency by market cap, behind Bitcoin. This is a very volatile and frontier asset class, so small allocations and regular rebalancing should be part of the allocation thinking process. Also recommended for the last appearance. Reiterating from July 16, 2021.

PAST CHOICES: Sep 17, 2020

Mike Philbrick’s Past Choices

Mike Philbrick, CEO of ReSolve Asset Management, discusses his past choices: ZRR, IVOL and The Bitcoin Fund.

BMO Real Return Bond Index ETF (ZRR TSX)

Has been designed to replicate, to the extent possible, the performance of the FTSE Canada Real Return Non-Agency Bond Index. This index is mainly in CAD $ and the bonds are issued or guaranteed by the Government of Canada. Real Return Bonds (RRBs) are Government of Canada bonds that have been specially designed to offset the impact of rising inflation. This is achieved by applying inflation compensation to the principal amount of the bond.

  • Then: $ 19.55
  • Now: $ 18.33
  • Yield: -6%
  • Total yield: -4%

The Quadratic ETF Interest Rate Volatility and Inflation Hedging (IVOL NYSE)

Is a bond ETF that seeks to hedge relative fluctuations in interest rates, whether those fluctuations result from falling short-term interest rates or rising long-term interest rates, and to take advantage of Market tensions when interest rate volatility increases, while providing the opportunity for improved income and protected against inflation.

  • Then: $ 27.40
  • Now: $ 27.86
  • Yield: 2%
  • Total yield: 6%

The 3iQ Bitcoin Fund (QBTC-U TSX)

Holds Bitcoin, stored “offline,” is a closed-end fund that trades on the TSX, is regulated, offered by prospectus, is CRA compliant. The management fee is 1.95% and represents a unique opportunity for Canadians to own this emerging asset class through a heavily regulated investment channel.

  • Then: $ 14.84
  • Now: $ 45.26
  • Efficiency: 205%
  • Total efficiency: 205%

Average total yield: 69%

ZRR TSX NOT NOT NOT
IVOL NYSE NOT NOT NOT
QBTC-U TSX NOT NOT NOT


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