Markets have continued to run in 2021 but the character of the rally has changed significantly, as Ritholtz wealth management director of research Michael Batnick details in Rotation. The technology stocks that led markets higher through much of 2020 are now lagging badly as smaller capitalization companies from non-tech sectors surge.
Mr. Batnick notes that while Apple Inc. has performed steadily over the past six months, the rest of the FAANG stocks have not been so lucky. Alphabet Inc. (Google’s parent company) ranks 357th in terms of S&P 500 member returns for the period, and it only gets worse from there. Facebook Inc. ranks 432nd, Microsoft Corp. 433, Netflix 450 and Amazon bringing up the rear at 455.
A similar trend was evident domestically. Canada’s most successful corporate contribution to online shopping, Shopify Inc., returned a decent 7.9 per cent in the last six months, but this ranks 154th among S&P/TSX Composite member companies.
The best-performing domestic stock in the past six months is another technology success story – Lightspeed POS – but elsewhere the top 10 is littered with cyclical companies most sensitive to recovering economic growth. These include Whitecap Resources Inc., Seven Generations Energy, Methanex Corp., Intertape Polymer Group Inc., Linamar Corp and Hudbay Minerals Inc.
South of the border, the rotation away from mega-cap technology stocks is best viewed in comparison with the Russell 2000 Index of small cap companies. Mr. Batnick reports that the equal-weighted return of the biggest seven tech stocks returned about 7.0 per cent in the last six months, underperforming the S&P 500 by 10 per cent and the Russell 2000 by 38 per cent.
— Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Westport Fuel Systems Inc. (WPRT-T) This stock continues to climb amid a bullish outlook for renewable and clean energy alternatives, particularly as the climate-friendly Joe Biden administration readies to take office in the United States. Shares of the Vancouver-based company, which makes alternative fuel systems and components, were up by as much as 18 per cent to $9.37 in early trading on the Toronto Stock Exchange Wednesday, their highest level since 2014. Brenda Bouw tells us more. (for subscribers)
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For investors who embrace ESG principles (they invest in companies with high environmental, social and governance standards), it may be easy to feel cynical about the trend. It can be put down as so-called greenwashing, where companies use green initiatives as a kind of marketing strategy, obfuscating their carbon-emitting ways. But is the greenwashing label too harsh in many cases? David Berman examines the issue. (for subscribers)
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Ask Globe Investor
Question: I am going to contribute $6,000 to my TFSA at the start of 2021. I was planning to invest this in ETFs that have U.S. stocks but are traded on the TSX in Canadian dollars. Some of these funds have a hedged and unhedged version. If the forecasts are correct for a weaker U.S. dollar for next year, would I be better to buy the unhedged versions in these ETFs? Thanks very much. Rob M.
Answer: When a fund is “hedged”, it means the managers have made arrangements to protect the assets against the effect of currency fluctuations. This removes one element of risk. An unhedged fund is fully exposed to currency fluctuations. In terms of Canadian-U.S. dollars, that means that a Canadian investor in an unhedged ETF that invests in U.S. securities would benefit from a rise in the value of the greenback. However, if the loonie goes up against the U.S. dollar, a Canadian investor will suffer a currency loss.
Predicting currency movements, especially short-term, is extremely difficult. That’s why I prefer hedged funds in this situation. Investing carries risk at any time, so why not remove one element of that risk?
What’s up in the days ahead
Veteran money manager Francois Bourdon will provide us with his latest stock picks. Plus, the Contra Guys will reveal their first stock selection of the year – a bank from across the pond.
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Compiled by Globe Investor Staff