Chris Dutton
–
Vice President and Director, TD Securities
How High Can Health Care Go?
Snapshot Technology and health care are the two major sectors that provide investors with exposure to secular growth equities. We chose ZUH for its exposure to large-cap health care stocks – and importantly, for its equally weighted structure – given that in past late cycles, a rotation to large-cap growth equities is a consistent trend.
Trade Idea – ZUH
When we launched our TD Securities Canadian Listed ETF Model Portfolio this past spring, we included a position in ZUH, which we continue to hold and recommend. Our ETF analysis is largely macro based, where we emphasize factors and sectors we believe best fit into our macro outlook. Understanding where we are in the economic global cycle (late cycle), and the economic and earnings trends, is a critical component to our ETF selection process. Throughout this low-growth and low-inflation cycle, we have emphasized a rotation in secular growth equities over more cyclical value equities.
Technology and health care are the two major sectors that provide investors with exposure to secular growth equities. We chose ZUH for its exposure to large-cap health care stocks – and importantly, for its equally weighted structure. As with past late cycles, a rotation to large-cap growth equities is a consistent trend. This was most evident in the late 1990s – a macro backdrop of low inflation and growth that’s not dissimilar to the current outlook.
We also believe ZUH’s equal-weighted structure is ideally suited for health care, as it distributes its subsector exposure more towards the higher-growth medical device and biotech subsectors. In doing so, it also lessens its exposure to the pharmaceuticals and managed care subsectors. which may face rising political and regulatory risks. Finally, within our portfolio we want to own some ETFs with underlying U.S. holdings hedged in Canadian dollars. Positive relative economic strength confirmed through narrowing bond yield differential could support a stronger Canadian dollar.
Outlook
The flat yield curve is a bond market confirmation of low inflation and growth expectations. This backdrop favours growth equities largely found in the Technology and Health care sectors. However, a fast re-steepening of the yield curve could signal a rotation back to value.
Chris Dutton
–
Vice President and Director, TD Securities
How High Can Health Care Go?
Snapshot Technology and health care are the two major sectors that provide investors with exposure to secular growth equities. We chose ZUH for its exposure to large-cap health care stocks – and importantly, for its equally weighted structure – given that in past late cycles, a rotation to large-cap growth equities is a consistent trend.
Trade Idea – ZUH
When we launched our TD Securities Canadian Listed ETF Model Portfolio this past spring, we included a position in ZUH, which we continue to hold and recommend. Our ETF analysis is largely macro based, where we emphasize factors and sectors we believe best fit into our macro outlook. Understanding where we are in the economic global cycle (late cycle), and the economic and earnings trends, is a critical component to our ETF selection process. Throughout this low-growth and low-inflation cycle, we have emphasized a rotation in secular growth equities over more cyclical value equities.
Technology and health care are the two major sectors that provide investors with exposure to secular growth equities. We chose ZUH for its exposure to large-cap health care stocks – and importantly, for its equally weighted structure. As with past late cycles, a rotation to large-cap growth equities is a consistent trend. This was most evident in the late 1990s – a macro backdrop of low inflation and growth that’s not dissimilar to the current outlook.
We also believe ZUH’s equal-weighted structure is ideally suited for health care, as it distributes its subsector exposure more towards the higher-growth medical device and biotech subsectors. In doing so, it also lessens its exposure to the pharmaceuticals and managed care subsectors. which may face rising political and regulatory risks. Finally, within our portfolio we want to own some ETFs with underlying U.S. holdings hedged in Canadian dollars. Positive relative economic strength confirmed through narrowing bond yield differential could support a stronger Canadian dollar.
Outlook
The flat yield curve is a bond market confirmation of low inflation and growth expectations. This backdrop favours growth equities largely found in the Technology and Health care sectors. However, a fast re-steepening of the yield curve could signal a rotation back to value.
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This email is intended for informational purposes only. Investments should be evaluated relative to the individual's investment objectives. The information contained in this newsletter should not be construed as investment and/or tax advice to any party. The statements and statistics contained herein are based on material believed to be reliable but may not be accurate or complete.