How to invest in September

Historically, August can be a jittery month, followed by weakness in September. This tendency has been subdued over the past 3 years due to artificial prompting of stock markets by the Fed’s monetary stimulus programs. Now that the money printing days are decidedly numbered, the market can return to its normal seasonal patterns – August proved to be typically choppy, as the seasonal patterns suggest. This year we’ve been given extra reason for caution in September given prior overbought market conditions and political uncertainty surrounding Syria.

Nonetheless, there may be a few places to hide, beyond cash this month. I’ve mentioned a couple of alternative strategy ETF’s in the past, including Horizons Managed Futures ETF (HMF-T), which goes long or short a basket of 20 commodity contracts. It’s a non-correlated asset to an equity portfolio. Its currently toying with the neckline of its old breakout point at around $9.60—which is just above my buy-price. I hold a 5% position in this ETF in the equity platforms I manage (which includes personal positions).

I’ve also been holding a few low-beta stocks in my platform. One area of interest to readers may be the pipelines. I recently acquired Pembina (PPL-T), but there are others worthy of a look. The recent pullback in interest sensitive stocks has brought some of them down to their long termed trendlines.

One position that I hold that has not performed well has been the utilities sector – specifically via the BMO Utilities ETF (ZUT-T). I’ve covered ZUT in a past blog – thus, to be accountable, I’d like to address this one now.

My original position was that this ETF tended to find support around $14.50- $15. Thus, that area looked to be a good entry point. After the Bernanke rate-scare this summer, the utilities sector was hit hard. It broke support.

Under normal circumstances, a break in support triggers a sell signal within my discipline. But I didn’t sell ZUT. My reasoning, however flawed, was this:

-the utilities sector, being a high-dividend (5%+) interest sensitive area, is likely experiencing an over-reaction to the potential of rising interest rates – particularly given the low potential for Canadian short rates to rise very soon.

-the sector is oversold from a technical perspective. Momentum indicators across the board are oversold, but not hooking up yet.

-the ETF has been running along the lower Bollinger Band for a while, also suggesting its eventually due for a bounce. I suspect that an oversold bounce may bring it back to old support near $14.50-$15

-long termed support sits at $13.10—which it last tested in 2011. Current downside is 0.40. Current upside is $1.00 (to $14.50)- therefore risk/reward is reasonable. For new positions, though, I’d wait for a momentum hook-up.

This one represented 6% of my equity platform when purchased, and now (due to underperformance) sits at around5%. The case for diversification is illustrated here. Its 15% drawdown has cost me 1% in performance –offset by the balance of better performing securities (view our overall equity platform performance at www.valuetrend.ca).