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 Asset Management.
With a broad collection of our economic signals stabilizing in recent months, the pace of economic growth and the financial markets may be approaching an equilibrium where the pace of economic growth and long-term interest rates hold steady.
For example, U.S. and global composite PMIs [purchasing managers’ indices] have shown signs of stabilization over the last few months. Furthermore, while long-term interest rates and industrial commodity prices have recovered from recent lows, they remain well below levels seen before the pace of growth began to slow in 2018.
This stability suggests that the slowdown in pace of economic growth has bottomed.
Attractive Sweet Spot
Our broad posture remains relatively conservative, though we think investors should add to areas that are attractive. Tactically, this includes a broad assortment of information technology companies with an emphasis on the semiconductor space.
While global equity markets have appreciated, we think that the semiconductor space still trades at a discount to historical valuations.
For example, while the S&P 500 Index is trading at a premium (>100%) to its historical average forward price-to-earnings (P/E) ratio, the semiconductor space trades at a discount (<100%) to its historical average.
Given the valuation differential, we chose a broadly diversified technology ETF that has an emphasis on semiconductor companies.
There are several options for investors looking for ETFs that fit this technology theme.
A few of those options include the Technology Select Sector SPDR Fund (XLK), the First Trust NASDAQ-100 Technology Sector Index Fund (QTEC), and the iShares PHLX Semiconductor ETF (SOXX).
At the time of writing, Stringer Asset Management held QTEC among its universe of ETFs included in its suite of ETF Portfolios.
Stringer Asset Management is a Memphis, Tennessee third-party investment manager and ETF strategist. Contact Stringer Asset Management at 901-800-2956 or at [email protected]. For a complete list of relevant disclosures, please click here.