© Reuters. 1 TSX Play will beat the S&P 500 in 2022
There is no shortage of TSX value stocks in the Canadian stock market. Even after the S&P 500 fell into a sharp correction in the first quarter of 2022, there still seems to be more value on this side of the border! As the markets slowly and steadily rise to new highs, I think Canadian investors have reason to prefer TSX stocks over US equities, even as exchange rates continue to become more attractive. At the time of writing, the has surpassed the mark of US$0.80.
With the strength of commodities, more subdued inflation relative to the states, and a Bank of Canada (BoC) that could be on the verge of repressing inflation by 5-6%, I wouldn’t be surprised if the loonie climbed higher. above US$0.82 by the end of the year. . Even then, those looking for value have plenty to choose from here, and in this article, we’ll uncover two intriguing ETFs that make life easier for investors.
Passive investing to help beat inflation and the S&P 500? The number of passive investment products has grown over the years. The ETF boom may have hit Canada later than the United States, but with so many options popping up, investors should look to ones that meet their unique needs. Now, if you are a simple investor, you can simply turn to vanilla ETFs and funds with the lowest costs and highest levels of liquidity. The most mature ones with the most assets under management (AUM) may be the place to look. But what if you’re looking to gain a slight edge over Mr. Market (the S&P 500, not the TSX) that previously could only be gained through individual stock picking?
With so many choices on the ETF scene, it’s never been easier to outperform the average passive passive investor. Consider specialized income ETFs like the BMO Covered Call Utilities ETF (TSX:ZWU), offered by Bank of Montreal (TSX:) that employ a covered call strategy.
Now, I’ll admit that I’ve never been a big fan of covered call ETFs, given the strength of the markets in recent years and the slightly higher admission price (MER north of 0 .7%). ETFs should be much cheaper than mutual funds, but the cost of selling covered call options is not cheap!
In bull markets, I’d say covered call ETFs aren’t worth the risk unless you’re a nervous investor who hates volatility of any kind! However, with the US yield curve about to invert, a recession could hit.
Macro risks are increasing. Why not play it safe? Add the many macro risks to the equation, and I don’t think bracing for a vicious bear market is a bad idea. I don’t see a bear market or recession hitting this year. But I also recognize that, like so many others, I cannot predict the future. I know I could be wrong, and a lot! So why not have a hedged play in a utilities hedged buy ETF? Yes, utility stocks are still “risky,” but I see them as a bond proxy in a time when bonds are less than investable.
To add another layer of defense into the mix, we have the covered call strategy which trades a little upside in holdings in exchange for income upfront. In a bear market or a tough flat market full of headwinds, the trade could be worth it. The magnitude of the risk has been noted. So, I think BMO covered call ETFs are finally becoming intriguing to a wider range of investors looking to be ready for all types of market “weather”.
If you’re looking to reduce risk, but aren’t willing to hoard cash or touch bonds, why not consider covered call ETFs? They seem built for times like these when there seems to be no alternative for cautious and conservative investors.
The 1 TSX Play post to beat the S&P 500 in 2022 appeared first on The Motley Fool Canada.
Contributor fool Joey Frenette owns the BANK OF MONTREAL. The Motley Fool has no position in the stocks mentioned.
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