Delta! Taper? (TWTW – Aug 16-20, 2021)

Delta: here to stay! Taper: on its way?

Well, while it’s clear the Delta Variant is causing significant setbacks in terms of our “smooth reopening” project, as I guess it could have been called, it looks like the extreme measures deployed to counteract COVID-19 are soon to be gradually retired. Case in point, the messaging out of the US FED appears to increasingly be – look for bond purchases to be curtailed, come September, or if not September, then fall. Will the effect of the Delta Variant stand in the way of that first step toward normalization (whatever that means, as so much still doesn’t seem all that normal these days)? More headlines on the topic sure to come out of Jackson Hole’s annual FED meeting coming up this week!

I guess the other parts of the narrative at the moment look like this: 1) Delta is a problem, but 2) the vaccines are doing a good job protecting the vaccinated and so 3) let the unvaccinated get their shots, please … because 4) soon, the vaccinated might also have to get a booster seeing that the 2 shots efficacy appears to be decreasing overtime. All good with that until … seasonally speaking, we head back mostly indoors … at that point, if the rise of Delta isn’t curbed, and if cases shoot further upward respectively hospitalizations and deaths rates climb … well you get the idea. For the moment, that doesn’t seem to be the scenario, but while the “market” overall still manages to make new highs – although this past week, we registered losses – clearly many “reopening trade” areas have pulled back sharply from earlier highs. Look no further than Energy; Airlines; cruise stocks, and oh, what about’em Lumber prices.

Don’t, however look at inflation, up 3.7% in July in Canada (a 10 year high), or at world food prices, which in July were up 31% from the same month last year, according to an index compiled by the United Nations’ Food and Agriculture Organization. Ouch 🙁

It is not with the yields on “High Interest Savings Accounts”, or bonds, whether corporate, government, provincial, junk (formerly high yield lol), respectively even EM yields that you’ll get there – particularly if you think you’re getting there without risk … but check them out, and let me know. In terms of what is available on Bond ETFs, looking at a few key reference ones:

XBB: 1.58% (iShares Core Canadian Universe Bond Index ETF as at Aug 19, 2021, aka less than 1/2! the most recent inflation data point … and that is before taxes if held in a taxable account).

ZMP: 1.54% ( BMO Mid Provincial Bond Index ETF)

VSG: 0.8% (Vanguard Short Term Bond Index ETF)

ZLC: 3% (BMO Long Corporate Bond Index ETF)

(Note: duration across the above – interest rates risk – is reflective of the exposure provided: Short term Bond vs Long Corporate: VSG / ZLC, for instance. In terms of “sensitivity” to a 1% change in yield level, then, it is critical to understand that in the case of ZLC, a rise of 1% in yield can be expected to translate into a 13% loss versus “current entry point”, vs for VSG, with a significantly lower duration, a 2.8% loss).

Join us for:

“Thematic” ETFs Investing Summit 2021 (Aug 24-26, 2021)

Tuesday: 9:35-11:35 (incl. Summit Intro/Kick off + Healthcare “themes” discussion)

Wednesday: 10:05-11:35 (Technology “themes” discussion)

Thursday: 10:05-11:35 (Clean Energy / AI Robotics “themes” discussion)

Summit ends:

Register HERE!

Recent ETF news:

BMO ETFs: Meaningful fee reduction at BMO ETFs regarding ZEB and ZMI => Read More: Click HERE!

Performance to August 20, 2021:

Key takeaway from performance above month-to-date?

Overall Canadian index – hardly gone anywhere …

Tech, Financials; Healthcare, staples and communications relative strength offsetting significant negative performance in cyclical areas (aka Materials and Energy in particular).

Top and bottom 10 performers July 2021 (iShares Canada ETFs):

Top and bottom 10 performers YTD (to Jul 30, 2021, iShares Canada ETFs):

Noteworthy?

  • Energy – continuing to give back some of the strong gains generated earlier – a disconnect between fundamentals and market prices? OR – are we seeing a disconnect between Delta and Demand ultimately telling us Delta will be huge problem this fall?
  • Dividends and Financials – any surprise they are “strong”?
  • in EM weakness presumably largely attributable to China “content”, both Fundamental indexing and Min Vol recently outperforming … will that continue?
  • Bullion and gold equities were strong in July … period of strength typically goes into September … BUT will that be the case with a strengthening USD?

The Bull Side:

Recent BMO Strategist Brian Belski interview with Uncommon Sense Investor => Click HERE!

The Bear Side:

David Rosenberg’s latest Financial Post Article: Why we are not at the beginning of a new bull market => Click HERE!

Canadian banks – looks like everyone will have to be vaccinated … following RBC lead on the subject … AND, then, presumably, while flexibility will be there, the office towers will be seeing renewed occupancy 🙂

Have a great week!