With the equities markets touching new highs, most U.S. stocks are hovering at or above fair value. However, exchange traded fund investors can still find opportunities in technology and dividend investments.
“The valuation of the market is at the higher end of a range of fair value and it’s pretty consistent with what we’ve seen, in terms of economic data, broadly speaking, getting better,” David Kostin, chief U.S. strategist at Goldman Sachs, said in a CNBC report.
Given the outlook for everything from economic growth the the narrow dispersion of stock returns and valuations, Kostin argues that stock pickers will have a harder time singling out bets.
“Everything’s basically in a very tight cluster and that suggests again there’s less stock picking opportunities,” Kostin said. “It’s just a more challenging market.”
Alternatively, the strategist suggests that investors should look for “pockets of opportunity” through thematic investments. Specifically, equity traders should increase risk with the tech sector, “the most attractively valued part of the market,” or dividend-paying companies that have returned cash to shareholders.
With ETFs, investors can gain broad exposure to asset classes and specific themes.
For instance, broad tech ETFs, like Technology Select Sector SPDR (XLK) and the iShares U.S. Technology ETF (IYW) , follow prominent names in the technology industry, like Apple (AAPL) and Microsoft (MSFT). Alternatively, investors can consider something like the First Trust Dow Jones Internet Index Fund (FDN) that focuses on internet companies, such as Amazon (AMZN) and Facebook (FB). [Old Tech Meet’s New Tech in This ETF]
The Vanguard High Dividend Yield ETF (VYM) and the iShares Select Dividend ETF (DVY) , two of the largest dividend funds, are now outperforming the S&P 500 this year as investors look for the extra yield despite a rallying equities market. VYM has a 2.73% 12-month yield and DVY has a 2.96% 12-month yield [Dividend Stocks, ETFs Back to Outperforming S&P 500]
Moreover, the First Trust NASDAQ Technology Dividend Index Fund (TDIV) marries the two ideas, tracking dividend-paying tech stocks. TDIV has a 2.33% 12-month yield.
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Full disclosure: Tom Lydon’s clients own shares of AAPL, MSFT, FB, AMZN, DVY.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
- Goldman Sachs