Equity analyst Don Vialoux names two ETFs as his “best buys” to benefit from US President Joe Biden’s expanding infrastructure investment.
Joe Biden’s sophomore year has run in line with history thus far, following up a splashy debut with a shaky second act, says longtime equity analyst Don Vialoux. “The politics are going to have quite a big impact on what happens this year,” he asserted in a Jan. 18 telephone interview with Investor’s Digest.
Mr. Vialoux founded the popular seasonality-focused website timingthemarket.ca with his son, Jon (a fellow analyst and also founder of equityclock.com). He was a co-adviser for the Horizons Seasonal Rotation ETF (TSX—HAC) from 2008-15 whose career in investing spans more than five decades.
The analyst reminds readers that the first year of a new US president’s term (that is, when power changes hands between parties) is generally very strong for the North American markets, lifted on the leader’s promise(s).
By the second, reality sets in.
“Last year was a great year for equity markets. The returns were spectacular, but coming into this year, not so much.
“The market starts out kind of slow, then will move significantly lower,” he explains. Historically, in the second year of a new presidency, the S&P 500 loses seven per cent from February to June, then hits a bottom before rallying again from June until the end of the year.
Infrastructure in its strong season
However, even while the analyst forecasts a general downward trend to pervade the next few months, he says there are still portions of the market that boast seasonal strength over this period, like infrastructure, which generally performs well from the third week of January until about the end of April.
Mr. Vialoux says he will be looking to the success of Mr. Biden’s Build Back Better program to not only inject a large amount of capital into infrastructure, but spur farther-reaching economic confidence and investment as well.
“I call it the canary in the coal mine, because if it goes well for the canary, there’s going to be a lot happening in the coal mine itself.”
For example, the construction of a network of electric vehicle charging stations, a pet project of the president’s, would demand builders, wood producers, miners, steelmakers, and expertise.
Continued scarce availability of raw materials due to COVID will continue to favour those furnishing them, the analyst adds.
“That whole commodity area is in play and looks to do very well in 2022 (particularly in Canada and the US),” he says.
“The price of lumber was trading at around US$600 per thousand board feet (in November); it’s now trading at around US$1,308 per thousand board feet, and that was even before the infrastructure bill was passed by Congress. You can imagine there will be lots of demand for lumber going forward,” along with steel, aluminum, nickel, copper, cement, and so on.
One of Mr. Vialoux’s “best buy” ETF recommendations in our Oct. 1, 2021 issue, the iShares S&P/TSX Global Base Metals Index ETF (TSX—XBM), composed of a basket of global base metals miners and related companies, rose from about $16.50 a share to a closing price of $20.73 between late September and Jan. 19.
The analyst expresses confidence that Mr. Biden’s program, previously assessed at US$3.5 trillion, will pass with the support of Democrats only, albeit in a whittled-down, US$1.8-trillion form.
“With that amount of money going into the economy, chasing the same goods . . . the inflation in the United States is going to skyrocket.”
Referring to internal party dissent from Democratic Sens. Kyrsten Sinema and Joe Manchin, he says, “They’re still dickering but the thing is, they’re still talking.”
2 ETFs to benefit from infrastructure spending
To benefit from expanding infrastructure investment, the analyst names the SPDR S&P Metals & Mining ETF (NYSEARCA—XME) as a “best buy”.
“The XME is kind of like the starting point, not just for the infrastructure play, but also for the metals play.
“It’s really a lot of things related to the infrastructure bill in general.” The ETF’s underlying assets are allocated 43 per cent in steel, 40 per cent in base metals and also some precious metals holdings.
Given that gold and silver are commonly used to guard against inflation, their prices are likely to increase too, says Mr. Vialoux.
His second “best buy” pick, Global X US Infrastructure Development ETF (BATS—PAVE), is made up of assets involved in producing raw materials, heavy equipment, engineering and construction (these vary from railways to tractor makers).
Other ETFs that the analyst points to as “best buys” are similarly structured but focused on different categories of commodities, such as the iShares Global Timber & Forestry ETF (NASDAQ—WOOD) and the iShares Global Agriculture Index Fund (TSX—COW).
This is an edited version of an article that was originally published for subscribers in the February 4, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846