5 seasonal base metals ETFs to buy now

Seasonal financial analyst Don Vialoux says his 'best buy' for the coming months is the base metals sector, and the easiest way to play the sector is through exchange-traded funds, he adds. He picks three global base metals ETFs and two copper ETFs, a metal he is especially bullish on.

Copper inventory and prices are low. A US-China trade agreement could create a surge in demand for the 'red metal'.

Asked how best to respond to market turmoil at 2018's end, seasonal financial analyst Don Vialoux suggests that depends on whether one is acting as a trader or an investor. "You can have fun in the short term, but be careful of what's going to come down the pipe, so to speak," he says.

Although retired in the Toronto area after decades working in finance, Mr. Vialoux stays active in the industry by running the popular seasonality-focused investing websites, timingthemarket.ca and equityclock.com, which he founded with his son and fellow analyst, Jon.

North American markets are highly volatile

Speaking with Investor's Digest in early January, Mr. Vialoux noted that volatility in North American markets remained high. The drop in Apple Inc.'s (NASDAQ-AAPL) price on Jan. 3 after it released disappointing guidance added to jitters.

Since the S&P 500 and Dow Jones Industrial Averages' lows on Christmas Eve, bounces upward have resembled similar bounces from extremely oversold levels in 2002, 2008, and 2011 he adds. This indicates a strong, albeit rocky, ride upward.

"If history repeats, look for a strong, but volatile upswing in North American equity markets well into the first quarter of 2019," says the analyst. For example, after the S&P/TSX Composite hit a low in July 2002, it rose 10 per cent in the following months. In 2008, it climbed 24 per cent from the bottom in November, and the index jumped 12 per cent in six weeks after finding a low in August 2011.

A market for traders, not investors

From a trading perspective, there are "huge gains and losses to be had over the next few months" due to people rushing into the markets upon witnessing the swings, but the trend will run toward lower prices before reaching all-time lows, Mr. Vialoux says. As for average investors, the analyst advises: "Just ignore all this noise and wait until the true low is set later this year."

Mr. Vialoux says possible drivers for gains include a return to work by US government employees, encouraging trade negotiations with China (which resumed earlier this month) and good news from 2018 fourth-quarter reports by S&P 500 corporations, including average year-over-year earnings gains estimated at 12 per cent, dividend increases and share buybacks.

The analyst expresses optimism that China and the United States will reach some resolution on trade since feeling the brunt of sanctions. "They're both hurting now so they want to resolve that . . . but the other issue is intellectual property, which is not easy to resolve."

Even so, he warns: "Gains recorded during the early part of the first quarter of 2019 may not last long if the House of Representatives moves to impeach President Trump."

Commodities should turn around in April

Historically, commodities and related stocks bottom out in mid-January before turning positive around the end of April. "It looks like it started a little bit early this year," says Mr. Vialoux.

US stock-based ETFs already showing technical indicators of entering their high season include those covering base metals, forest products, oil and gas producers and energy services. In Canada, lumber stocks, along with select oilfield services stocks and energy producers, have been performing well since the Dec. 24 low. In fact, Mr. Vialoux says: "Canadian energy stocks have started to outperform US peers."

"People think, at least for now, the worst is over, and now we're going to get that sector going through a recovery phase," he says of domestic energy.

The analyst says his 'best buy' for the coming months is the base metals sector. The easiest way to play the sector is through ETFs, he adds. Base metals and related stocks have performed well technically speaking despite shaky stock markets since October. "Prices have moved lower, but strength relative to the S&P 500 and TSX Composite has been positive since the beginning of December," Mr. Vialoux explains.

5 base metals ETFs to buy

For general exposure to base metals miners, Mr. Vialoux recommends buying iShares MSCI Global Metals & Mining Producers ETF (BATS-PICK). The iShares S&P/TSX Global Base Metals Index ETF (TSX-XBM) and BMO S&P/TSX Global Equal Weight Global Base Metals Hedged-to-CAD Index ETF (TSX-ZMT), offer similar exposure, but trade in Canadian dollars.

Mr. Vialoux is particularly bullish on copper. Inventory is near a multi-year low, as are prices, while a US-China trade agreement would set the stage for a surge in demand for the red metal (China is the world's largest base metals user).

He recommends investing in the Global X Funds Copper Miners ETF (NYSEARCA-COPX) or the copper futures-based iPath Bloomberg Copper Subindex Total Return ETN (OTCMKTS-JJCTF) to take advantage.

This is an edited version of an article that was originally published for subscribers in the January 25, 2019, issue of Investor's Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor's Digest of Canada.

Investor's Digest of Canada, MPL Communications Inc.133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846