Best, worst eco­nomic sec­tors swap spots

The Prince George Citizen - - Money - Divya BALJI Bloomberg

As mo­men­tum trades un­ravel in ma­jor stock mar­kets across the world, in­vestors in Canada have another rotation to watch.

Tech stocks, which had been the top per­form­ing sec­tor on the S&P/TSX Com­pos­ite Index un­til last month, are now among the worst. Tak­ing the No. 1 spot in Septem­ber is the health-care gauge. Be­fore you deem this a flight to safety, con­sider that volatile pot stocks make up more than half of the S&P/TSX Com­pos­ite Health Care Index.

“Things got a lit­tle bit overex­tended in the realm of safety,” said Hans Al­brecht, fund man­ager at Toronto-based Horizons ETFs Man­age­ment Canada Inc. “Come early Septem­ber that un­wound a lit­tle bit.”

Part of it can be blamed on the move that in­vestors are mak­ing from growth stocks to value as they sell out of tech and into sec­tors like en­ergy and fi­nan­cials. But there’s also been a re­bound in the shares of weed com­pa­nies.

It may be a tech­ni­cal bounce after cannabis stocks un­der­per­formed since April. “They’ve been suf­fer­ing all year,” Al­brecht said. “Whether there’s some sort of un­der­ly­ing story that will give them a big push, I’m not sure.”

Pot stocks have had a rough year as lead­ers in the in­dus­try re­ported dis­ap­point­ing re­sults, reg­u­la­tory breaches and as ac­qui­si­tions lan­guished amid U.S. an­titrust re­views. Canopy Growth Corp., up about 15 per cent this month, was in over­sold ter­ri­tory in Au­gust. Aurora Cannabis Inc. was flirt­ing with that tech­ni­cal level for most of last month. Oth­ers point to a short squeeze.

“A lot of peo­ple were short­ing the com­pa­nies for fun­da­men­tal rea­sons and also quan­ti­ta­tive rea­sons,” said Greg Taylor, chief in­vest­ment officer at Pur­pose In­vest­ments.

And that may be un­wind­ing. Some U.S.-based com­pa­nies have posted good earn­ings, like Cu­raleaf Hold­ings Inc., and that might be boost­ing sen­ti­ment, he said. Bank of Montreal is no longer al­low­ing re­tail in­vestors to short cannabis stocks, ac­cord­ing to a me­dia re­port. But the pot stock bounce does feel like a tech­ni­cal move, Taylor added.

Canada’s tech stocks have added $49 bil­lion in value through the end of Au­gust. Since then, they have erased about $7 bil­lion as in­vestors re­assessed ex­pec­ta­tions for global eco­nomic growth. On the flip­side, among the top com­pa­nies on the health-care gauge this month are weed stocks: Canopy Growth, Aurora Cannabis, Hexo Corp., Aphria Inc. and Cronos Group Inc.

“It al­most feels like a change in sen­ti­ment,” Taylor said.

“A lot of peo­ple have been hid­ing in mo­men­tum names. Some peo­ple have re­versed those trades.”

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