Harvest Commentary: Taking Stock June 2024

Date

June 19, 2024
By Ambrose O’Callaghan

The United States stock markets have delivered positive returns through much of 2024, continuing the positive momentum that was established in the previous year. However, that performance has increasingly been powered by a smaller segment of large-cap companies. Indeed, readers have undoubtedly heard about the outsized performance of the “Magnificent 7” in the tech space over the past year. If we strip out the “big six” of Amazon, Meta, Nvidia, Microsoft, Apple, and Alphabet from the S&P 500, we have experienced three calendar quarters of negative earnings growth across the rest of the market.

Investors took profits in the month of April. Demand resumed in the month of May, but with a broader range of equities. Nvidia continued to show its dominance, but there were other sectors and stocks that were able to catch up with the leaders to close out the first half of 2024.

The summer season is historically slow in the markets. Harvest’s portfolio management team expects volatility to persist for both bonds and equities. Moreover, the team emphasizes that this summer is a key moment to stay active, attentive, and invested. A prudent strategy in this environment involves looking under the surface for opportunities while generating cash flow from call options to support total returns.

June healthcare check up

The healthcare sector pulled back slightly in the month of May 2024. Negative moves in the healthcare sector over the course of May 2024 were driven by stock specific events. Macroeconomic data sets impacted the healthcare sector in line with others. Within healthcare, the managed care subsectors experienced volatility earlier in 2024 and changes to reimbursement structures impacted valuations in the near term. The Tools & Diagnostics sub-sector has also proven volatile due largely to a slower-than-expected recovery in China.

Regardless, there are still very promising opportunities in the GLP-1 drug category space for diabetes and obesity. The uptake of these drugs in the US has been significant at a still-early stage in their lifespan. A recent study from Manulife Canada found that drug claims for anti-obesity medications in Canada rose more than 42% from 2022 to 2023.

Harvest Healthcare Leaders Income ETF (HHL:TSX) offers exposure to the innovative leaders in this vital sector. This equally weighted portfolio of 20 large-cap global Healthcare companies aims to select stocks for their potential to provide attractive monthly income as well as long-term growth. HHL is the largest active healthcare ETF in Canada and boasts a high monthly cash distribution of $0.0583.

Harvest Healthcare Leaders Enhanced Income ETF (HHLE:TSX) is built to provide higher income every month by applying modest leverage to HHL. It last paid out a monthly cash distribution of $0.0913 per unit. That represents a current yield of 10.44% as at June 14, 2024.

Where does the technology sector stand right now?

Investors poured back into technology stocks in May 2024 after taking profits in the month of April. However, they were more discriminating than in previous months and showed a preference for hardware stocks, specifically semiconductors.

Nvidia maintained its leadership position. It has soared past a $3 trillion market capitalization in the first half of June 2024. However, other AI-related tech stocks encountered turbulence which may give some investors pause around the broader bullish case for AI.

The Harvest Tech Achievers Growth & Income ETF (HTA:TSX) offers access to tech leaders like Nvidia, Apple, Microsoft, and others that have lifted up the sector and the entire North American market since 2023. This ETF holds those leading companies and delivers high income, every month, through the application of an active covered call writing strategy.

HTA has delivered annualized growth of 15% since inception. The ETF has climbed 10.9% YTD, 29.71% 1-year, 13.19% 3-year, and 20.55% 5-year. In owning HTA, investors get pure performance combined with a monthly cash distribution of $0.1200 per unit. That represents a current yield of 7.62% as at June 14, 2024.

Investors hungry for higher monthly income and growth potential can consider the Harvest Tech Achievers Enhanced Income ETF (HTAE:TSX). HTAE is built to deliver enhanced income and greater growth opportunities by applying modest leverage to an investment in HTA, offering access to the same portfolio of tech giants.

Conclusion

The volatility in April gave way to some more aggressive buying in May, beating back the old investing adage “sell in May and go away”. Performance has shifted towards a broader array of names, while volatility has remained elevated. In this environment, our portfolio management team believes that equally weighted exposures – combined with cash flow from covered calls – can help investors generative attractive total returns during a transitory economic period. Overall stock markets index performance may appear relatively stable, but looking under the surface for opportunities can prove essential in this climate.

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 indicated rates of return are the historical annual compounded total returns (except for figures of one year or less, which are simple total returns) including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The funds are not guaranteed, their values change frequently, and past performance may not be repeated. Tax investment and all other decisions should be made with guidance from a qualified professional. The content of this article is to inform and educate and therefore should not be taken as investment, tax, or financial advice.

Disclaimer

For Information Purposes Only. All comments, opinions and views expressed are of a general nature and should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage in personal investment strategies.

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Certain statements in the Harvest Blog are forward looking Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS.

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Harvest ETFs Announces Increases to Monthly Cash Distributions

Harvest ETFs announced by press release on June 25, 2024 that certain ETFs will increase their monthly cash distribution amount for all classes taking effect for the July 31, 2024 record date with a payable date of August 9, 2024. For more details, please read the press release.

PRESS RELEASE