Michael Venuto, CIO and co-founder of Toroso Investments in New York, a strategist that uses a simple diversified asset allocation approach customized to clients:
- BioShares Biotechnology Clinical Trials (BBC): I really like the venture capital nature of this ETF. They equal-weight biotechnology companies that are in clinical trials. They include a screening process to avoid specialty pharma companies like Valeant. Deal activity volumes in biotechnology remain strong for larger pipeline-starved drug companies acquiring smaller biotech companies. In 2015 in particular, we saw drugs in phase III acquired at record valuations even before receiving FDA approval and generating a dollar of sales, including Synageva acquired for $9 billion, Receptos for $7 billion, Auspex for $3 billion and ZS Pharma for $2 billion, all from the BBC portfolio. With the large pharma companies declining in sales in 2015 and generating anemic growth in 2016, there continues to be strong strategic rationale to acquiring leading biotechnology companies. I don’t believe all of the companies in this ETF will succeed, but the ones that do should provide substantial returns.
Rob Stein, CEO of Astor Investment Management in Chicago, a strategist that builds ETF portfolios based on proprietary macroeconomic models:
- Financial Select SPDR (XLF | A-92): I think the financial sector is strong, and loan demand will pick up as incomes continue to rise with gains in the employment sector. The challenges from loans to the energy sector have bottomed, and with higher rates, profit margins will increase. XLF should outperform the broad markets.
Clayton Fresk, portfolio manager at Stadion Money Management in Watkinsville, Georgia, a strategist focused on delivering returns with less volatility:
- Guggenheim S&P Equal Weight Healthcare (RYH | A-79): Health care was one of the top- performing sectors year-to-date. But it’s been trading sideways over the last few months. With a bit of market strength, it appears the sector could be poised to break higher from the recent range. Plus, I like the equal-weight aspect of this ETF, as it is a bit more diversified away from the large pharma names, as compared with a market-cap-weighted fund. At the same time, RYH has a lower allocation to the sometimes-more-volatile biotech industry.
Wesley Gray, CEO and CIO of Alpha Architect in Broomall, Pennsylvania, a long-term-focused active investor who is also behind a handful of ETFs:
- Concentrated active value was crushed in 2015. This strategy may get worse before it gets better, but for investors with a long time horizon, the odds are tilted in their favor. Investors should check out the following deep value funds—the top five domestic value funds with less than 50 holdings, according to Bloomberg:
- PowerShares Dynamic Large Cap Value (PWV | B-87)
- First Trust Capital Strength (FTCS | B-75)
- WBI Tactical LCV Shares (WBIF | D-33)
- WBI Tactical SMV Shares (WBIB | C-44)
- ValueShares US Quantitative Value (QVAL | C-61)
Contact Cinthia Murphy at [email protected].