As 2020 starts up, many investors are in a dilemma: with most stock markets trading at record levels, is it time to adjust allocations to avoid part of the damage from a possible market downturn?
The question is especially important for retirees whose investment horizon is usually shorter than that of the average investor. The current market environment also plays with specific investment recommendations, such as the right combination of traded funds. Many retirees are looking for performance in their portfolios to help finance their golden years.
The Globe asked a handful of financial advisors and analysts for their best high-performance ETF selections for retirees in the context of the current market environment.
John De Goey, portfolio manager, Wellington-Altus Private Wealth
“In my opinion, the elephant in the room is the very high level of the markets today,” says Mr. De Goey. “The alarm bells should be ringing.”
He believes that investors should stop achieving performance and prepare to play defense in 2020. With this perspective in mind, Mr. De Goey recommends the BMO Ultra Short-Term Bond (ZST) ETF. It is not a high performance product, but it likes its “constant, predictable and almost guaranteed” positive performance. Mr. De Goey’s dividend recommendation for all market conditions is the Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY). He likes its wide diversification and low cost, as well as the tax credit advantage of receiving payments as Canadian dividends.
Larry Berman, director of investments, ETF Capital Management
Berman warns investors to be careful when it comes to high-yield investments. “That term generally refers to junk bonds,” he says.
Berman is not a fan of corporate debt without investment grade. “No retiree should be long-term junk bonds, even though everyone wants higher returns,” he says.
Instead, it favors the ETF BMO series of high-dividend covered calls that they invest in some of the highest quality companies, while mitigating downward risk through the use of covered call options. Its main options include the BMO Europe High Dividend Covered Call Covered to ETF CAD (ZWE) and the BMO US High Dividend Covered Call. UU. Cover to ETF CAD (ZWS).
As a way to take advantage of the dividend tax credit that applies to payments by Canadian companies, Mr. Berman recommends the BMO Canadian High Dividend Covered Call ETF (ZWC), or the BMO Covered Call Utilities (ZWU) ETF , which may include a pipeline and telecommunications actions.
John Hood, president and portfolio manager, J.C. Hood Investment Counsel
Mr. Hood also likes the ETF BMO family of covered calls for retirees seeking performance. Through these funds, he says that investors are giving up part of the growth of the shares in exchange for higher returns. And although the management expense indices (MER) for these funds are relatively high, with 0.72 percent, as an experienced options trader, he thinks it’s worth it. His first choice is the BMO Covered Call Canadian Banks ETF (ZWB). He is a fan of Canadian banks and says that his solid administration puts them in a good position, despite the winds against the risks of mortgage and consumer debt and low interest margins. He also likes the High Dividend Coverage ETF (ZWC) of Canada.
Todd Rosenbluth, head of mutual fund research and ETF, CFRA
Rosenbluth offers two selections from the south of the border for investors seeking performance: the first is the Vanguard Dividend Appreciation (VIG) ETF, which owns US stocks that pay dividends from companies that have increased their dividends for 10 years or more. These actions offer a combination of revenue and growth potential in a diversified low-cost portfolio.
“Companies that have collected dividends for more than a decade are likely to continue doing so in the foreseeable future,” he says. Rosenbluth points out that the fund also offers a strong combination of exposure to all sectors, including cyclical ones, such as information technology. His second choice is the iShares iBoxx Investment Grade Corporate Bond ETF (LQD). As the name implies, the fund maintains corporate investment grade bonds in a diversified, low-cost portfolio, offering a stable income stream. Mr. Rosenbluth likes the fund because of its healthy income stream of companies with solid balance sheets and strong earning power to meet future payments. He also points out that ETF is highly liquid, which facilitates trade.
Terry Shaunessy, President and Portfolio Manager, Shaunessy Investment Advisor
Shaunessy believes that retired investors should think about the total return on their investment portfolios. “Trying to rely solely on dividends and performance in an environment of such low interest rates will cause self-employed investors to assume too much duration risk (purchase of long-term bonds) and / or credit risk (purchase of bonds corporate), “he says.
Mr. Shaunessy’s total return on investment approach implies accepting current income and capital gains realized as equals when portfolio returns are observed. For this approach, it favors multi-asset ETFs, such as the iShares Core Balanced ETF Portfolio (XBAL), the iShares Core Growth ETF Portfolio (XGRO), the Vanguard Balanced Portfolio ETF (VBAL) and the Vanguard Growth Portfolio ETF (VRGO).
“Don’t think too much about your investment decision,” says Shaunessy. “Cheap and reliable passive wallets: that is the way forward.”