Smiley Fries with that?

Smiley Fries with that? 

For some reason, revisiting the Table introduced early December ( another “cut” through recent performance & sector weights within Factors – Dec 8, 2021 ; as well as Mercury Rising – Dec 11, 2021 ) and updating it to the latest sector weights (amongst Financial; Energy; and Materials), as well as looking at Shopify exposure … “Would you like fries with that came to mind” (as in … what kind of exposure would you like? traditional benchmark? Value tilt? ESG? Growth; Min or Low Vol? respectively what’s your take on Shopify’s recent “dive”?).

Anyways, that brought the movie American Beauty movie to mind 🙂

That, of course, was – in my books – an epic movie with Kevin Spacey, of course way before he got himself crucified for inappropriate (make that criminally punishable) behavior (which is another whole story) Anyways, the clip here is kind of fun:

If nothing else, the music is cool, and the ambition displayed in that Fast Food joint interview is … well, amusing …

This, of course, has nothing to do with the topic at hand, which as mentioned, involves revisiting different ways of accessing Canadian Equities through ETFs, with varying degrees of exposure to Financials; Energy; and Materials; as well as some, or in many instances no exposure to Shopify. Shopify, which from its peak of $2228.73 back in early November, a mere 2 months ago has basically dropped by about 1/3 … which … well, could be a level from which things settle down a bit … just … maybe …

BUT if not … well, the stock ($SHOP) still isn’t by a long stretch a value stock at some 40X earnings (but yes, it has been growing these fast). Speaking for myself, I am thankful for having – I hope – generally played my cards correctly, after shifting from “Min Vol” into straight “Composite” back in Nov 2020, before now moving into “Value & Fundamental” exposures in November 2021. The unanticipated benefit of wanting to get decent cyclical exposure aka mostly oil and gas, in effect, has been that I have for the most part avoided what pain or relative performance burden Shopify imposed as it “corrected”…

So here we go:

which looked like this about a month ago:

Note that as mentioned, I have added the recent exposure to Shopify, as well as the performance numbers for each of these ETFs in December – a month during which a) Shopify exposure would have detracted from performance, while b) Energy exposure would have contributed to it.

Takeaway (s) – highlights, if any?

Well –

1) with Energy kicking off 2022 in style, momentum remains with the sector, pushing those who haven’t yet awoken to the new realities of the industry into a position where they may have to get off the fence

2) are markets continuing to shift under our very eyes in terms of what works, and what doesn’t, after a correction in many high octane names (yes, including Shopify) which started about 6-8 weeks ago already? And if so, what does that say in terms of yes/no wrt to Shopify exposure?

So here a few points:

  1. CRQ dominated the Canadian landscape as far as 2021 performance, as shown here:

2) beyond Fundamental (CRQ), which as noted led to the upside in 2021 as a whole (note 133% weighting of late vs benchmark ZCN in 3 key sectors – fin / ene / mat); with Energy almost at 2X index weight), we have Value (XCV), dominated by financials, for a very different sector mix.

3) Dividend; Value; and for that matter even ESG mean very different things in terms of ultimate sector weight exposure – requiring Advisors again to decide: more? or less energy with that?

See XESG vs ESGA: one is more or less 110% index weighted toward energy, the other underweight by almost 25%. THAT – will make a (possibly huge?) difference going forward. Similarly, looking at Value, whether you have 61% financials or 38% should play a rather significant role in what your ultimate outcome will be. + Of course, dependent on what else you or your clients own, you will want to pick one or the other, to make sure you aren’t leaning too too heavily or relying on in a too meaningful a way on one specific sector or theme working out.

As for Dividend, well, one looks to have over 2X the exposure to energy the other had, while reducing sector concentration toward even at 108%; versus the lighter energy one at 121.4%. As for the Volatility “dampening” “crowd”, well, one has 0 Energy and 0 Shopify while the other had a pinch of the latter and about a 28% underweight energy relative to the main composite index. Not to belabor the point, but these things (relative weights), you must know and take into! Otherwise – well, you’ll be left with unintended sector bets.

4) in Canada, at least, Value has killed Growth over the past 12 months, with performance almost twice as high at +34.05% versus growth 17.86% (lagging composite performance at 25.03%). What will 2022 bring?

Over the week-end, I posted “The Great Disconnect” where I used iShares ETFs to speak to what went down in December 2021, respectively for the past year, providing the usual 1 month, respectively YTD tables listing top and bottom performing ETFs (top 10; bottom 10). Here are the equivalent tables for BMO ETFs:

Top and bottom 10 performing ETFs December 2021 (BMO ETFs):

  • Dec performance favoring Low Vol; Staples; Infrastructure and Consumer; Value and Dividend, while otherwise hitting Innovation; China; and Treasuries

  • 2021 performance dominated by Energy; Financials; Value and Dividend, with Bonds; Golds; and China / EM bringing the rear with disappointing performance (Bonds not that unexpected … China and EM more so …)
  • Energy – noteworthy in terms of relative performance of market cap weighted Energy (XEG), versus EW exposure (ZEO), where latter lagged the former by near 20% (!!!) in 2021 … At that, interesting to me is the fact that XEG outstanding # of units declined significantly in late 2021 (meaning someone net redeemed …) all the while the sector’s fundamentals continue to look rather supportive of inflows, if anything … Specifically, XEG # of units as at December 2021, while up 6% month-over-month, were still 20% lower than end of November #. As for ZEO, December saw a meaningful 24.6% jump in O/S. Noteworthy – perhaps?

That’s it for now … more to come soon 🙂

Have a nice evening 🙂