As we approach another fiscal year, investors are advised to reassess their strategies regarding large-cap stock funds. According to Astoria Portfolio Advisors’ CEO John Davi, while significant investments have flowed into index funds, particularly those tracking the S&P 500, there are better avenues to explore beyond these established giants. This article identifies alternative investment strategies, emphasizing the search for undervalued assets in different market sectors.
Despite the prevailing optimism surrounding large-cap stocks, Davi urges a more nuanced approach. He acknowledges a slight reduction in bullish sentiment, suggesting that while there are still promising investment themes available, caution is warranted. “It’s hard for me to be overly bullish,” he noted, hinting at potential market vulnerabilities even as the economy continues to recover. The notable surge in S&P 500 index fund investments signifies a trend among investors that could limit their exposure to potential returns.
Davi’s recommendations signal a strategic pivot. Astoria aims to construct diversified exchange-traded fund (ETF) portfolios that prioritize quality alongside growth. The emphasis is on locating stocks that are somewhat off the beaten path, presenting opportunities for investors who remain skeptical about the sustainability of the recent bull market, particularly among large tech firms.
Astoria identifies two specific small-cap ETFs as vehicles for untapped potential: the ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM) and the WisdomTree US Smallcap Quality Dividend Growth Fund (DGRS). Both funds have emerged as noteworthy alternatives in 2024, yielding returns of approximately 20% and 18%, respectively. These figures, while trailing the S&P 500, still represent consistent growth which is indicative of the potential present in the small-cap arena.
Davi notes that “There are actually a lot of companies that are growing faster than the Mag 7,” referring to the mega-cap technology stocks that have dominated the market narrative. This insight leads to a broader understanding of market dynamics: small-cap stocks may offer more compelling valuations and rapid growth potential, especially as they undergo less scrutiny and competition compared to larger companies.
The aftermath of the recent elections has contributed substantially to potential bullish outcomes for the financial sector. By including the Invesco KBW Bank ETF (KBWB) and the AltShares Merger Arbitrage ETF (ARB) in their recommendations, Astoria acknowledges the forecast of a regulatory shift under the new administration. This shift could bolster bank profitability and encourage merger activities, making these funds particularly relevant.
Data points to a noteworthy trend; for instance, the KBWB saw a 14% increase just in November, showcasing the market’s response to potential policy changes. As bank stocks rally, the AltShares fund stands poised to benefit from regulatory easing, although it currently remains underreported and smaller in assets. Nevertheless, Davi emphasizes its promise as merger activity could revive, given the anticipated flurry of deal-making in the near future.
Among the most exciting developments in the ETF space for 2024 are crypto funds, particularly the Bitwise Ethereum ETF (ETHW). With Ethereum’s price lagging compared to Bitcoin, Davi argues that there’s significant room for appreciation, given that it remains around 36% below its all-time high. The potential for a catch-up rally makes Ethereum an attractive option for forward-thinking investors.
The ongoing evolution of the cryptocurrency landscape indicates a growing appetite for diversified crypto exposure. With several asset managers gearing up to launch new funds, the forthcoming administration may create a more favorable environment for crypto investments, providing investors with even more opportunities. As mainstream acceptance of cryptocurrencies continues to rise, their integration into diversified portfolios could markedly reshape investment strategies.
As the investment environment shifts, a move towards diversification emerges as a crucial strategy for investors. The opportunities lie beyond novel investments in large-cap stocks and encompass small-cap equities, financial sector ETFs, and even cryptocurrencies. Adapting to an evolving landscape requires a proactive mindset, and investors might find it beneficial to cast a broader net.
While large-cap stocks have captured significant interest in 2023, 2024 presents a unique chance to explore a wider array of investment options. Heeding Davi’s insights may allow investors to uncover diverse opportunities that could yield substantial returns in a potentially volatile market. Embracing this comprehensive approach can help navigate the complexities of tomorrow’s financial landscape, ensuring sustained growth and success.