With markets trending down for the most part of 2022, investors are left with a conundrum of where to invest their money to avoid hefty losses. Having investments in exchange-traded funds (ETFs) generally offers greater protection from high volatility due to, generally, broader diversification.
However, often times market participants have a few core holdings either through ETFs or single stocks, utilizing other smaller holdings to ‘fill in the cracks’. These smaller holdings, if performing well, could slowly start to take over a portfolio offering outsized returns, but they need to be chosen well and offer high quality.
In accordance with this paradigm, Morningstar, an American financial services firm, offered three great ETFs that can play a supporting role in a portfolio, which Finbold has analyzed in detail.
Picks for you
Avantis US Small Cap Value ETF (NYSEARCA: AVUV)
AVUV is an actively-managed US small-cap ETF focusing on creating an index-like diversification, with investments in hundreds of securities and exposure to the most relevant industry segments. Further, the fund’s concentration is on the lower side as the top ten holdings account for less than 10% of its value.
“This fund targets small-cap stocks with the best combination of value and profitability characteristics. Value and profitability make an attractive duo. Both factors have historically been tied to market-beating returns, and they tend t.o excel at different times, which should allow this fund to remain competitive across most markets. By focusing on stocks that are both cheap and profitable, AVUV can find underpriced companies while avoiding many of the riskier options that reside in the small-cap bargain bin.”
Year-to-date (YTD), the fund is down 10.46%, and in the last month, AVUV has been trading in the $70.49 to $79.19 range. Technical analysis indicates a support line at $68.86 and a resistance line at $72.94.
SPDR S&P Dividend ETF (NYSEARCA: SDY)
SDY focuses on the stock universe from the S&P 1500 index, choosing those stocks that have paid dividends for at least 20 consecutive years. Such an approach often guarantees high-value companies for the ETF.
“While the fund prioritizes the most established dividend stocks to the highest yielding, it has provided solid income to investors. SDY is chock full of familiar franchises with solid industry footing and healthy balance sheets.”
YTD, SDY is down 5.81% while trading between $119.39 and $129.89, with a support line at $114.07 and a resistance zone ranging from $121.65 to $126.45.
iShares Core MSCI Emerging Markets ETF (NYSEARCA: IEMG)
IEMG focuses on all stocks of all sizes from 24 emerging markets and weights the portfolio by market capitalization. Such an approach allows to channel the market consensus on stocks and keeps turnover low. Investors should keep in mind that emerging markets often come with more political risks.
“This fund tallies over 2400 names. The 10 largest of which constituted less than one-fifth of the portfolio at the end of July. This sprawling snapshot of emerging markets landscape comes at a lean price it’s 0.09% expense ratio ranks one of the diversified emerging market categories cheapest.”
Emerging markets did not do too well in 2022, as the ETF is down 22.49% YTD. Over the past month, it traded from $46.15 to $50.34, with a support line at $46.52 and a resistance zone ranging from $47.38 to $48.61.
All in all, having supporting stocks or ETFs to fill in the void left by the lackluster performance of high-flying growth stocks could benefit any portfolio.
The above three picks offer solid diversification and an opportunity to invest in parts of the markets sometimes neglected by market participants.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
