Will we see more of the same?
Year-to-date, the traditional non-cyclical sectors have performed on cue and in textbook fashion, outperforming cyclical stocks by a wide margin. The S&P/TSX Capped Healthcare (+12.8%), Capped Telecom (+13%), Income Trust (+15.4%) and Capped REIT (+13.8%) Indexes have posted year-to-date double-digit gains compared with year-to-date double-digit losses for most every other sector in the TSX.
The most beaten-down subindexes year-to-date are Capped Metals & Mining (-31.2%), Global Mining (-26.4%), Capped Materials (-23%), and Capped Energy (-21.9%).
How much longer can this go on? If you believe the eurozone crisis will continue to influence global economic activity for the next two quarters – and there’s no reason to believe it won’t – then commodity prices may continue to drift downwards for awhile yet. China, one of the world’s largest gobblers of raw materials. But it is contending with a slowdown in growth as its main European export market shrinks. And coming full circle, because a large chunk of Canada’s raw material ends up in China, reduced demand for raw materials implies a direct hit on Canada’s vast resources sector.
China is desperately trying to avoid a “hard landing” for its economy (which most analysts define as growth below the 7% threshold). If that happens in the next quarter or two, Canada’s already beaten-down resources companies are likely to get beaten down even more.
If you believe that things might get worse before they get better, look at bearish sector bets on iShares Capped Energy Index Fund (TSX: XEG, Friday’s close $16.26) and iShares Capped Materials Index Fund (TSX: XMA, $19.25). Specifically buy the XEG March 16 puts at 90 cents or the XMA Mach 19 puts at $1.20.
Conversely, traders looking to protect gains in non-cyclical sectors might consider selling covered calls to hedge against sudden downdrafts in iShares REIT Index Fund (TSX: XRE, $15.23). Specifically sell the XRE March 16 calls at 30 cents or better.
President, CIO & Portfolio Manager
Croft Financial Group
Richard Croft has been in the securities business since 1975. Since February 1993, Mr. Croft has been licensed as an investment counselor/portfolio manager, operating under the corporate name R. N. Croft Financial Group Inc. Richard has written extensively on utilizing individual stocks, mutual funds and exchangetraded funds within a portfolio model. His work includes nine books and thousands of articles and commentaries for Canada’s largest media channels. In 1998, Richard co‐developed three FPX Indexes geared to average Canadian investors for the National Post. In 2004, he extended that concept to include three RealWorld portfolio indexes, which demonstrate the performance of the FPX portfolio indexes adjusted for real-world costs. He also developed two option writing indexes for the Montreal Exchange, and developed the FundLine methodology, which is a graphic interpretation of portfolio diversification. Richard has also developed a Manager Value Added Index for rating the performance of fund managers on a risk adjusted basis relative to a benchmark. And In 1999, he co-developed a portfolio management system for Charles Schwab Canada. As global portfolio manager who focuses on risk-adjusted performance. Richard believes that performance is not just about return, it is about how that return was achieved.
The information provided on this website, including financial and economic data, quotes and any analysis or interpretation thereof, is provided solely for information purposes and shall not be construed in any jurisdiction as providing any advice or recommendation with respect to the purchase or sale of any derivative instrument, underlying security or any other financial instrument or as providing legal, accounting, tax, financial or investment advice. Bourse de Montréal Inc. recommends that you consult your own advisors in accordance with your needs before making decision to take into account your particular investment objectives, financial situation and individual needs.
All references on this website to specifications, rules and obligations concerning a product are subject to the rules, policies and procedures of Bourse de Montréal Inc. and its clearinghouse, the Canadian Derivatives Clearing Corporation, which prevail over the content of this website. Although care has been taken in the preparation of the documents published on this website, Bourse de Montréal Inc. and/or its affiliates do not guarantee the accuracy or completeness of the information published on this website and reserve the right to amend or review, at any time and without prior notice, the content of these documents. Neither Bourse de Montréal Inc. nor any of its affiliates, directors, officers, employees or agents shall be liable for any damages, losses or costs incurred as a result of any errors or omissions on this website or of the use of or reliance upon any information appearing on this website.
BAX®, CADC®, CGB®, CGF®, CGZ®, LGB®, MX®, OBX®, OGB®, OIS-MX®, ONX®, SCF®, SXA®, SXB®, SXF®, SXH®, SXM®, SXO®, SXY®, and USX® are registered trademarks of the Bourse. OBW™, OBY™, OBZ™, SXK™, SXJ™, SXU™, SXV™, Montréal Exchange and the Montréal Exchange logo are trademarks of the Bourse. All other trademarks used are the property of their respective owners.
© 2024 Bourse de Montréal Inc. All Rights Reserved.