Advisors Turn Toward Large Cap, Non-US ETFs

Experts tell us how they plan to rebound this year after a brutal 2022.

Last year was challenging for investors, so ETF.com spoke with advisors to find out what exchange-traded funds they’re recommending to help their clients gain back ground in 2023. Among the surprises we found was a fresh leaning toward large cap and international stocks. Read on for more varied and thought-provoking responses.  

Eric Amzalag, Founder; Peak Financial Planning 

1) SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)  

This is a short-term Treasury bill fund that allows investors to obtain the interest returns of short-term Treasuries without having to lock up the cash by buying Treasury bills outright. This is advantageous because it offers the investor the opportunity to participate in the Treasury market rather than leaving the money in cash, and allows them to nimbly adjust to market conditions should an opportunity present itself to deploy those funds into higher-risk opportunities. At the same time, it has a very stable price that has nearly no fluctuation protecting the investors’ principal amount. 

2) iShares 7-10 Year Treasury Bond ETF (IEF) 

3) iShares 20+ Year Treasury Bond ETF (TLT) 

These Treasury funds have suffered tremendously over the past 18 months for myriad reasons, but they have "led the losses in the market." Down significantly more than the S&P 500 Index, I see an opportunity for significant appreciation in the price of the funds over the next six to 18 months that will likely "lead" the stock market’s return to growth. In addition, investors can benefit from receiving interest while they hold this position to eventually take profits later on and rebalance into higher-risk opportunities. 

For both IEF and TLT, I see the opportunity to "leapfrog" from fixed income to equities over the next six to 18 months by taking profits from a high-probability trade on long-duration Treasuries and reallocating those profits to heavily discounted equities.  

Drew Cook, CFP, Partner & Director of Investment Management; Berman McAleer 

1) Invesco S&P 500 Equal Weight ETF (RSP)
This ETF tracks an equal-weighted version of the S&P 500 Index. As large cap growth has dominated the past decade, the traditional S&P 500 Index has [shifted so that] these positions represent a larger portion of the index [above the historical average] because of its cap-weighted structure. However, RSP removes those recency biases by treating all holdings equally, which is beneficial because it maintains a more balanced allocation to areas such as value and [smaller stocks] that are potentially primed for success in the years ahead. 
 
2) Vanguard Total International Stock Market Index ETF (VXUS) 
U.S. equities have generally outperformed global equities over the past decade, but global investing is still a necessary component to a diversified investment strategy. This position accomplishes that goal, as it provides an allocation to both developed international and emerging markets within the same ETF, which should benefit a portfolio on a go-forward basis. 
 
3) T. Rowe Price Blue Chip Growth ETF (TCHP) 

If an investor already has a diversified investment portfolio and they are looking for an enhancement to their strategy, our firm believes an “active ETF” such as TCHP could be beneficial. If you wanted to add a large cap growth active mutual fund to your portfolio now, you need to be cognizant of the embedded gains in the portfolio, which are gains that previous investors have benefited from, but which you could be responsible for in the future through capital gains distributions. An advantage of incorporating an “active ETF” is that you can get the same exposure as an active mutual fund but in a much more tax-friendly investment vehicle. 

Coe Magruder, Founder & CEO; Washington Growth Strategies 

1) SPDR S&P 500 ETF Trust (SPY) 

I think [this is] oversold, as I see an economy strong enough to manage the Fed’s interest rate increases and have a soft landing. The Fed is slowing from a very overheated economy to a normal economy, not from a normal economy to zero. SPY is a historic top performer, beating active managers 84% of the time. It also has a high percentage of tech, which will be the exposure you want in an economic rebound you will see in 2023. Look at the up days in the market. What goes up? Tech and growth. 

2) iShares MSCI Emerging Markets ETF (EEM)  

Again, I think this is oversold, and [it has] a high percentage [weighted to] China. I know China has a million problems, but it is an economic monster and will be the global growth engine for years to come. India has the highest projected GDP in 2023, and Brazil will recover as well. Add in some other South Asian, countries and you have a winner. 

3) Vanguard US Small Cap ETF (VB)  

[This is another] oversold ETF and a strong risk-on play. [It has a] history of outperformance that will return. 

Contact Heather Bell at [email protected]