With earnings season pretty much over and second-quarter profits priced into the stock market, we thought we'd undertake something of a midyear checkup, looking into top ETF picks positioned to perform well through the remainder of the year.
The ever-present risk of a destabilizing shock notwithstanding, the indicators mostly lend themselves to sustaining the bull market. The U.S. economy is perking up, inflation remains low, and interest-rate policy remains indefinitely accommodating, all of which bode well for stock prices.
So, with consideration given to how market and economic conditions have changed so far this year, we asked investment professionals for their current top ETF picks.
President and portfolio manager of J.C. Hood Investment Counsel
1. Vanguard Large-Cap Index Fund ETF (VV)
This ETF gives investors exposure to a diversified group of U.S. large-cap companies, which have outperformed small and mid-cap stocks on an index basis so far this year. "The U.S. recovery is real, housing is up, higher paying jobs are increasing, manufacturing has strengthened and the U.S. is far less dependent on foreign oil," Mr. Hood said.
2. iShares Core S&P/TSX Composite High Dividend Index ETF (XEI)
Since iShares lowered its management expense ratios on many of its offerings, this ETF, with a projected MER of 0.22 per cent, is a more attractive way to getting exposure to income-producing equities, Mr. Hood said. "Given that fixed-income returns are so meagre, the only alternatives are to go longer term, higher default risk like junk bonds, or emerging market debt. No thanks."
3. BMO covered call ETFs (ZWB, ZWA, and ZWH)
"Covered calls do mitigate some market risk as the call premium reduces the price of the underlying security," Mr. Hood said, noting that, on the other hand, investors give up some of the upside reward with these kinds of ETFs. ZWB tracks Canadian banks, ZWA tracks Dow Jones industrial average companies, and ZWH tracks dividend-paying U.S. companies.
Co-founder of ETF Capital Management
1. BMO U.S. High Dividend Covered Call ETF (ZWH)
As expectations are for modest stock market upside over the rest of the year, the premium earned on covered calls adds value and lowers volatility, Mr. Berman said. "This is a defensive holding with U.S. dollar exposure."
2. SPDR Barclays Short Term High Yield Bond ETF (SJNK)
The ticker is no coincidence as this ETF tracks U.S. high-yield junk bonds with a remaining maturity of less than five years. Mr. Berman said he likes this name as a diversifier. And while there is credit risk to consider, "I think rates will stay low for years," he said.
3. iShares Core MSCI Europe ETF (IEUR)
"Europe is undervalued – for a good reason – versus the U.S. market," Mr. Berman said. So focusing on high quality European companies is likely a good strategy over the next few years. This ETF also hedges against currency exposure.
Vice-president and associate portfolio manager at BBSL
1. Vanguard FTSE All-World ex Canada Index (VXC)
For the domestic-minded Canadian, this is a TSX-listed ETF that invests anywhere but here. "This is a great product for minimizing home bias," Mr. DeGoey said.
2. iShares Global Agriculture Index ETF (COW)
Mr. DeGoey tends to focus on lifelong investing ideas and trends don't get much more long-term than the global demand for food. "Population is increasing, but farmland is decreasing," Mr. DeGoey said.
3. BMO Global Infrastructure Index ETF (ZGI)
Also on the list of lasting trends is the need for global infrastructure renewal, Mr. DeGoey said. "Roads, bridges, sewers and the like are crumbling the world over and need to be refurbished."
Globe app users please click here for table showing top ETF picks for the rest of 2014
Top ETF picks
|ETFs||Ticker||52-wk high ($)||52-wk low ($)||YTD price chg (%)||1-yr price chg (%)|
|Vanguard Large-Cap Index Fund ETF *||VV-N||91.74||75.00||8.0%||20.3%|
|iShares Core S&P/TSX Composite High Dividend Index ETF||XEI-T||24.00||20.25||10.2%||16.8%|
|BMO Covered Call Canadian Banks ETF||ZWB-T||17.92||14.92||10.6%||18.8%|
|BMO Covered Call Dow Jones Industrial Average Hedged to CAD ETF||ZWA-T||19.71||17.44||1.6%||10.2%|
|BMO U.S. High Dividend Covered Call ETF **||ZWH-T||16.09||15.09||5.7%||N/A|
|SPDR Barclays Short Term High Yield Bond ETF *||SJNK-N||31.06||30.09||-1.1%||0.3%|
|iShares Core MSCI Europe ETF * **||IEUR-N||50.51||46.31||-4.9%||N/A|
|Vanguard FTSE All-World ex Canada Index ETF **||VXC-T||25.79||24.78||2.7%||N/A|
|iShares Global Agriculture Index ETF||COW-T||29.94||25.07||9.4%||16.8%|
|BMO Global Infrastructure Index ETF||ZGI-T||31.32||23.12||22.4%||32.8%|