ETF Trends Publisher Tom Lydon wrote a piece for Fox Business identifying the opportunities abound for investors in 2019 after what's been a stormy 2018 fraught with market challenges, such as trade wars, rising rates and year-end volatility.
The tumult was evident in all three major indexes - the Dow Jones Industrial Average lost 6.70 percent through December 30, while the S&P 500 has shed 7 percent and the Nasdaq Composite is down 4.632 percent. Though there were challenges aplenty in 2018, there was one recurring theme: inflows into exchange-traded funds (ETFs).
Year-to-date (YTD) inflows into ETFs are now at $314.75 billion and $51 billion in December alone. In the same month, mutual funds have lost $122 billion.
Given that scenario, then where are the opportunities in 2018? Lydon cited the following ETFs investors can look to for what hopes to be a more prosperous 2019:
- iShares Core MSCI Emerging Markets ETF (NYSEARCA:IEMG)
- SPDR Gold Trust ETF (NYSEARCA:GLD)
- iShares Gold Trust (NYSEARCA:IAU)
- Vanguard Value ETF (NYSEARCA:VTV)
- iShares Edge MSCI Minimum Volatility USA ETF (NYSE:USMV)
- Vanguard Dividend Appreciation ETF (NYSEARCA:VIG)
- iShares Edge MSCI USA Quality Factor ETF (NYSE:QUAL)
- SPDR Portfolio S&P 500 Value ETF (NYSEARCA:SPYV)
- PIMCO Low Duration ETF (NYSEARCA:LDUR)
- Davis Select U.S. Equity ETF (NASDAQ:DUSA)
- Davis Select Financial ETF (NASDAQ:DFNL)
- Davis Select International ETF (NASDAQ:DINT)
- Davis Select Worldwide ETF (NASDAQ:DWLD)
- Cambria Tail Risk ETF (NYSE:TAIL)
- ARK Innovation ETF (NYSEARCA:ARKK)
Emerging Markets Comeback
While the majority of investors might be driven away by the red prices in emerging markets during much of 2018, Lydon believes they should be looked at as substantial markdowns, especially if trade negotiations between the U.S. and China result into something materially positive - a result emerging markets bettors are hoping for. From a fundamental standpoint, low price-to-earnings ratios in emerging markets ETFs have made them prime value plays as capital inflows continue - a benefit for IEMG.
Golden Opportunities in 2019
GLD and IAU could see a bounceback, particularly if the Federal Reserve acts as dovish as their words. Rising interest rates have spurred a strong dollar in 2018, but a return to precious metals could curry the favor of investors seeking safe havens from a rate pause or lower rates.
The Return to Value and Quality
VTV, USMV, VIG, QUAL, and SPYV could lead the way in 2019 as more investors leave the growth-fueled investments that helped them during the extended bull run. However, a return to more value-based investments could be the byproduct of the volatility that has been racking the markets, especially if these oscillations persist through the first quarter of 2019.
Fixed-Income and Getting Active
With volatility reigning in the capital markets, a resurgence of fixed-income, especially of the short-duration variety, has been one of the ways investors have been getting defensive. Rather than go with an aggregate bond fund, fixed-income investors can opt for LDUR, which has an active management component that can take into account any changes in the bond market space.
Additionally, investors can look to actively managed funds like DUSA, DFNL, DINT, DWLD, and TAIL to corner specific areas of equities and add a layer of adaptability with the active management component. Actively managed funds like TAIL can address downside risk by quickly shifting to cash or government debt when equities go awry.
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