By Ambrose O’Callaghan
United States equity markets enjoyed a significant run up from January through to the end of March in 2024. However, that momentum came to a halt in the month of April, as markets corrected in the face of shifting monetary policy expectations and rising geopolitical tensions. The S&P 500 was down 4.08% on the month at the end of April. Despite this, there is reason for strong optimism as we look ahead to the rest of the year. Today, I want to explore several sectors that should keep investors interested as we move into May.
Before diving into our sector-specific analysis, investors should keep in mind that Harvest ETFs’ strategy is to provide high, stable income in any market condition. For our latest monthly cash distributions, click here.
The technology sector stages a comeback in late April
The S&P 500 Information Technology Index has climbed 41.78% year-over-year as of early afternoon trading on Thursday, May 9, 2024. However, the Index ran into headwinds in the month of April that saw it reach a low in 2024 in trading on April 19. The technology sector would storm back to close out the month on the back of strong earnings from companies like Nvidia, which unveiled its Q1 FY2024 earnings on April 30.
Investors can access Nvidia and other burgeoning tech giants with the Harvest Tech Achievers Growth & Income ETF (HTA:TSX). This ETF holds leading large-cap tech companies. Meanwhile, it is designed to provide a consistent and competitive monthly income through an active covered call strategy.
Units of HTA have recorded performance of 36% year-over-year and 15.23% since inception, as of April 30, 2024. In October 2023, HTA bumped up its monthly cash distribution to $0.12 per unit. With closing price of X as May Xth, the $0.12 per unit translates into a current yield of 8.14%.
Spring check up: Healthcare offers value and growth opportunities
Earlier this month, Harvest ETFs CIO and lead portfolio manager Paul MacDonald gave a breakdown of the healthcare sector for the spring season, which is worth watching.
The healthcare sector has lagged the broader market since the start of 2023. Regardless, it remains a promising sector that is in constant demand with permanent and non-cyclical drivers like aging populations, developing nation spending, and technological innovations to bolster it fortunes. On the innovation front, Goldman Sachs recently projected that the anti-obesity medications market could grow by more than 16 times from US$6 billion in early 2024 to US$100 billion by 2030.
The Harvest Healthcare Leaders Income ETF (HHL:TSX) seeks to invest in innovative leaders in this vital sector. HHL stands out against its Canadian peers healthcare ETFs recording solid performances over a 1-year, 2-year, 3-year, and 5-year period.
HHL Performance vs. Canadian Healthcare ETF Universe
|
ETFs (as at April 30, 2024) |
1Y |
2Y |
3Y |
5Y |
S.I. |
|
Harvest Healthcare Leaders Income ETF (Class A) |
7.48% |
7.23% |
9.04% |
10.92% |
7.13% |
|
Canadian Universe of Healthcare ETFs* |
3.40% |
4.62% |
4.02% |
8.15% |
n/a |
Data source: Bloomberg L.P.
*Includes ETFs listed on a Canadian exchange focused on Healthcare companies including ETFs with covered calls and non-covered calls, priced in Canadian dollars with currency hedging. There are a total of 7 ETFs with 5 years of history and 10 ETFs with 1 year of history. Based on annualized returns as at April 30, 2024.
Better yet, HHL has delivered a predictable and sustainable monthly distribution of $0.0583 per unit since its inception. That represents a current yield of 8.48% as of May 8, 2024.
US industrials are primed for a resurgence
Three major pieces of US legislation that were rubber-stamped in 2021 and 2022 have primed the manufacturing sector for strong growth through the 2020s and beyond. The US manufactures just 12% of the world’s chips in 2022. That is down from 37% in 1990. The CHIPS and Science Act aims to bolster US competitiveness in this space.
In April 2024, we launched the Harvest Industrial Leaders Income ETF (HIND:TSX). HIND offers exposure to leading industrial companies and emerging trends. Meanwhile, it is overlayed with a covered call writing strategy to provide steady monthly cash distributions.
How interest rates have impacted fixed income so far in 2024
US inflation had grown into a cause for concern for investors in the month of April. Investors had shrugged off high inflation numbers in the first quarter of 2024. However, sticky inflation persisted into April, which spurred many investors and prognosticators to rethink their thesis for Federal Reserve interest rate cuts.
As we’d discussed earlier this month, the shift in expectations for the rate market has impacted bond markets. In late April, the 10-yearand 20-year US bond was up to 4.86% compared to 3.85% at the beginning of the year.
In September 2023, we launched the Harvest Premium Yield Treasury ETF (HPYT:TSX). This is a portfolio of ETFs that hold longer dated US Treasury bonds that are secured by the full faith and credit of the US government. HPYT employs up to 100% covered call writing to generate a higher yield and maximize monthly cashflow. Indeed, HPYT has paid out a monthly cash distribution of $0.15 per unit for seven consecutive months since its debut.
Conclusion: Will April showers bring May flowers?
There is an adage in the investing world that states investors should “Sell in May and go away”. Negative sentiment arrived earlier this spring due to a reluctant Fed and geopolitical tensions that spooked some investors and drove up energy prices. However, as it stands today, it remains more likely than not that we will see a downward move by the end of 2024. Moreover, tensions between Israel and Iran appeared to have petered off after the two exchanged strikes.
The current market environment reaffirms the important of long-term thinking among investors. As always, there is noise in the form of monetary policy and geopolitical events. Regardless, the underlying fundamentals of growth leaders remains strong. It may be prudent to take advantage of the short-term dips in this climate to add to core positions.
Disclaimer
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently, and past performance may not be repeated. The content of this article is to inform and educate and therefore should not be taken as investment, tax, or financial advice.
