Popular investing strategy losing appeal with stocks at record finding
Passive investing through exchange-traded funds (ETFs) has long been a popular strategy for many investors. However, recent trends suggest that this approach may be losing its appeal. Tidal Financial Group Chief Revenue Officer Gavin Filmore has noticed a shift in his clients’ preferences, with many no longer content with simply buying popular ETFs tied to market indexes.
“I think investors are looking beyond just the let’s call it the ‘VOO and chill approach’ where you just buy the index in an ETF, which is a great approach but they’re looking for diversification,” Filmore told CNBC’s “ETF Edge” this week. “And they’re not finding it within the product or within the index, so they have to look beyond that.”
Filmore specifically references the Vanguard S&P 500 ETF (VOO), which tracks the S&P 500’s performance. Both VOO and the S&P 500 have seen gains of almost 16% so far this year.
Meanwhile, Strategas Securities’ Todd Sohn believes that investors may be losing diversification by using the S&P 500 as a benchmark. “Imbalance is the perfect word,” said the firm’s senior ETF & technical strategist. He points out that technology now accounts for over 35% of the index, a record high. On the other hand, defensive sectors like consumer staples, health care, energy, and utilities are at an all-time low weight of 19% in the S&P 500, according to FactSet.
In light of these imbalances, Sohn is seeing renewed interest in small-cap stocks. The Russell 2000, which tracks this group, recently hit an all-time high and has outperformed the S&P 500 by more than 28% over the past six months. This shift towards small caps may indicate a broader trend of investors seeking alternative routes outside of the large-cap space.
Looking ahead, the focus on Wall Street will be on the upcoming earnings reports from five of the seven “Magnificent 7” tech giants – Meta Platforms, Alphabet, Microsoft, Apple, and Amazon. These heavy hitters are set to report their latest earnings next week, which could have a significant impact on market sentiment and investor behavior.
In conclusion, the landscape of ETF investing is evolving as investors seek greater diversification and alternative opportunities beyond traditional market indexes. The resurgence of interest in small-cap stocks and the upcoming earnings reports from tech giants highlight the dynamic nature of the financial markets and the importance of staying informed and adaptable in today’s investment environment.
