You should have some exposure to US stocks now. We recommend the hedged versions of PH&N US Equity Fund, which is a managed offering, and TD US Index Fund-e, an index offering.
What to do about common stocks
Stocks have continued to rally from their late-December low. By late February, the S&P/TSX Composite Index was up 2.6 per cent, bringing the year-to-date gain to 11.3 per cent.
January is often regarded as a harbinger for the stock market. (See ‘January Barometer’ in our Glossary.) If that proves true this year, then stocks will end 2019 higher.
While there’s cause to be optimistic, there are also reasons for caution. Markets have gotten a boost from strong fourth-quarter corporate earnings performances.
But US corporate earnings are expected to decline in the first quarter for the first time in nearly three years. Some analysts, though, expect that profit margins will hold up better than expected.
What’s more, profits are projected to rise in the second quarter. So, if these predictions come true, markets could indeed do well this year.
Investors seeking a combination of growth and income may want to buy now.
What to do about mutual funds
We recommend a slight underweight in US stocks at this time. This underweight can be to the benefit of overweights in Canadian, international and emerging markets.
The US market held up relatively well in 2018, and like the Canadian market, has had a strong comeback so far this year. The S&P 500 Index currently trades at about 16.4 times this year’s estimated earnings. We consider the US market as fairly valued.
By contrast, the Canadian market trades at about 14.5 times estimated earnings.
We do recommend you have some exposure to US securities now though, even if the country is recommended as an underweight based on its stock market’s expected returns. The US, after all, has a highly diversified economy with multinational businesses that give you a global reach.
For direct exposure to the US, we recommend the hedged versions of PH&N US Equity Fund, which is a managed offering, and TD US Index Fund-e, an index offering.
This is an edited version of an article that was originally published for subscribers in the March 1, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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