Between trade war worries, data privacy concerns and everything in between, Wall Street has endured a recent bout of volatility.
But that doesn’t mean all money managers expect the U.S. economy — or the overall market advance to come to a screeching halt in the near future.
“We expect economic growth to strengthen modestly and the Fed to continue to raise the fed funds rate per their communicated schedule,” Carl Aschenbrenner, a portfolio manager at HCR Wealth Advisors, told IBD for April’s Best ETFs Performance Update . “While the recent correction has included the first significant volatility in two years, it appears to be a technical correction due to overbought/melt-up conditions in January as opposed to a fundamental one, since corporate earnings growth remains strong, propelled by the tax cut.”
Aschenbrenner, who joined the Los Angeles-based wealth manager in 2015, has worked in the investment industry since 2007. HCR, which manages about $1 billion in assets, was founded in 1988 by Chief Executive Officer Greg Heller.
Here, in his own words, Aschenbrenner offers three of his best ETF picks:
We expect the S&P 500 to exceed 3000 and enter a period of overvaluation during the next couple of years, before the end of the business cycle as broad-based investor bullishness and/or fear of missing out on returns (drives gains).
VanEck Vectors Morningstar Wide Moat (MOAT). This ETF picks stocks of companies that are deemed to have competitive advantages or “moats” which make their fundamental performance more predictable and are undervalued according to a traditional discounted cash flow analysis. While it tends to give exposure to larger cap, high quality, undervalued companies, you still can get thoughtful exposure to growth companies like Amazon (AMZN) and Salesforce (CRM). The methodology leads to outperformance with less volatility and more safety than the broader market. It fits well with the current environment because value and growth-at-a-reasonable-price tend to do better in a rising rate environment where volatility has increased and fundamentals matter more.
First Trust North American Energy Infrastructure (EMLP). This is a top actively managed MLP (master limited partnership), pipeline C-corp, and diversified utility ETF. Oil & gas MLPs have recently been irrationally sold off after a Federal Energy Regulatory Commission ruling to eliminate an income tax allowance for interstate pipelines. The effect on their earnings will be contested and reviewed over the next couple of years, but is estimated to be a low-single-digit percentage of earnings. Yet the sell-off has been mid-single-digit or higher across the industry.
This is definitely an asset class where active management is important to assess how changes in commodity production and pricing can affect midstream volume in different geographies. We expect investor interest in energy assets will return as commodity prices continue to rise. We also think thoughtful utility exposure makes sense now as well. Utilities have been sold off on concerns around rising interest rates, but we don’t expect long-term rates to rise much.
Vanguard FTSE Emerging Markets (VWO). This is a market-cap-weighted emerging markets ETF with a low 0.14% expense ratio that gives exposure to the largest, growing emerging market companies as well as those in China. Emerging markets have started to perform over the last year after essentially a lost decade. Returns going forward are expected to be higher than for every other asset class on a long-term basis. We expect emerging markets to be the best beneficiaries of higher commodity prices and firming global growth late in the business cycle.
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