These ETFs Offer Better Risk/Reward Trade-off

March 29, 2017

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features Gary Stringer, president and chief investment officer of Memphis, Tennessee-based Stringer Asser Management.

Business and consumer confidence levels in the U.S. and abroad continue to reflect improving global economic fundamentals.

Both the U.S. consumer discretionary sector and broad international developed markets are poised to take advantage of potential market gains as we expect these improving fundamentals to translate to higher stock prices going forward. Additionally, these securities are trading at attractive relative valuations compared to the S&P 500 Index, potentially creating an attractive risk/reward opportunity.

Looking further afield, we think investment opportunities are improving overseas in select areas.

For example, business activity for the eurozone surged in February to its highest level in years, according to the latest IHS Markit survey. Eurozone job creation is at levels not seen in nearly a decade, while new orders and business optimism are moving higher, which bodes well for economic activity in the months to come.

While broad foreign economic indicators are improving, developed foreign equity markets are trading at a discount to their average. We think these attractive valuations create a nice buffer to downside risk, while improving economic data support higher prices.

Here too investors face many choices. Given the recent run-up in emerging market stock prices, we think the broad developed markets offer a better risk/reward trade-off.

Some investment ideas in that space include the iShares MSCI EAFE ETF (EFA), the Goldman Sachs ActiveBeta International ETF (GSIE) and the iShares Currency Hedged MSCI EAFE (HEFA).

At the time of writing, Stringer Asset Management held GSIE among its universe of ETFs included in its suite of ETF Portfolios. SAM is a Memphis, Tennessee third-party investment manager and ETF strategist. Contact SAM at 901-800-2956 or at [email protected]. For a complete list of relevant disclosures, please click here.

 

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