John Hood, portfolio manager, Croft Financial Group

FOCUS: ETFs 

MARKET OUTLOOK:

Today marks the implementation of the increased capital gains inclusion rate from 50 to 75 per cent. Finance Minister Chrystia Freeland has decreed that this will affect only 40,000 or just 0.13 per cent of Canadians with an average income of $1.4 million who must pay “just a little more” in the interest of “fairness.” This is nonsense! There is an exemption for individuals with capital gains under $250,000 but all corporations, including small businesses, will have all gains taxed at the higher rate, that is at 34 per cent rather than the current 27 per cent.

Let's remember that her predecessor, Bill Morneau, tried to categorize small business “retained earnings” as income. Since small business tends to use retained earnings like a registered retirement savings plan (RRSP), this is like saying that RRSP gains are now taxable as income. Many farmers are now corporations as are professionals, including medical doctors, who will be adversely affected by this latest tax grab. Any individual estate, including rental properties, the family cottage, portfolio gains, the sale of a business or an estate will all be subject to the new confiscatory rules. To say the least, this will discourage investment in Canada and lure professionals southward.

I have been overweight U.S. equities for several years. Economists that I follow have been predicting first a recession, or a soft landing and now, conventional wisdom says “We are out of the inflationary woods.” Manufacturing is slightly down, services slightly up, home sales are down, and consumers/retail is flat, while commercial real estate is a morass. Not reassuring. But a survey of major U.S. and Canadian investment banks are all calling for the S&P 500 Index to range between 5,300 and 5,500 by year-end so relatively neutral in the near term and bullish going forward and I agree.

• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
• Listen to the Market Call podcast on iHeart, or wherever you get your podcasts

TOP PICKS:

TD U.S. Equity Index ETF (TPU TSX)

TPU $42.08 is the TD version of the S&P 500. I am recommending it based upon the fact that since I already hold the S&P 500 in all accounts for a long time, by adding to the same ETFs ,it would create a tax issue in non-registered accounts because the Canada Revenue Agency averages purchase prices. Held in family and client accounts.

Industrial Select Sector SPDR Fund (XLI NYSEARCA)

XLI $123 is the SPDR  industrials. Prices have ranged from $52-126 sector fund. I am looking for assets apart from tech giants for a spreading S&P Mer .09 GE /CAT/Union Pacific/Lockheed Martin. Aerospace 22 per cent machinery 20 per cent ground trans 12 per cent. Not held in any accounts.

Global X 0-3 Month T-Bill ETF (CBIL TSX)

CBIL $50.10 Globalx T-Bills app yield 4.91 per cent for conservative investors; held in family/personal/client accounts.

PAST PICKS: JUNE 29, 2023

12 month treasury bills

• Then: $5.40
• Now: $5.10

BMO Equal Weight Banks ETF (ZEB TSX)

• Then: $33.31
• Now: $34.90
• Return: 5%
• Total Return: 10%

Vanguard Large-Cap Fund ETF (VV NYSEARCA)

• Then: US$200.31
• Now: US$250.27
• Return: 25%
• Total Return: 26%

Total Return Average: 18%