U.S. Markets closed

Blue Chips to Soar Ahead? Buy These 5 ETFs

Sanghamitra Saha

When almost the entire market is worried about overvaluation, billionaire investor Ron Baron simply walked opposite. Recently, Ron Baron told CNBC that there is no bubble fear in the market. Going by Ron Baron’s interview, CNBC added that stocks are “cheaper than they should be, and he predicts in 13 years the stock market and economy are going to double.”

Investors should note that Baron Opportunity Fund BIOPX beat the S&P 500 as the former gained about 29.2% against the blue-chip index’s 9.6% returns (as of June 19, 2017). This data may entice investors to seriously consider Baron’s view.

The S&P 500’s bull market went past eight years in early March and in a transition phase from policy easing to tightening. Baron believes that interest rates and oil prices would remain lower in the coming days, which would help the economy soar “much faster than it would have otherwise."

In this context, investors should note that though the Fed enacted the fourth-rate hike almost after a decade and the second-rate hike of this year last week, U.S. Treasury yields remain subdued mainly on political uncertainty. Several developed economies are practicing super-easy money policies and even some emerging markets are aggressively cutting rates. This should really keep the rates at lower levels for long.

Coming to the oil patch, prices have been under pressure in the last three years. Though the OPEC  pursuing an output cut deal this year, ample U.S. shale oil supplies are keeping a lid on the oil prices. And as of now, there is no hint of a material improvement in oil prices.

Baron finds GDP "significantly understated” at the current level.Most recently, the World Bank kept its forecast for global growth in 2017 and 2018 unchanged at 2.7% and 2.9%. If attained, the global economy will witness seven-year high growth next year.

ETFs to Play

If you want to bet on Ron Baron’s view, you can try a few large-cap blend ETFs. Blend because it offers the best of both value and growth. Historically, value funds emerged winners in the S&P 500’s bull run (read: 5 Ultra-Cheap Value ETFs to Beat the Choppy Market).

The ongoing timeframe is also not devoid of risks with Trump’s policy uncertainty and Brexit. On the other hand, economies are on the mend, opening some scope for growth investing too (read: The Best Performing ETFs of the Bull Market Might Surprise You).

Vanguard Large-Cap ETF VV

This fund seeks to track the CRSP US Large Cap Index, which measures the performance of a variety of stocks of large U.S. companies. The $9.67-billion product holds 612 stocks, which are well spread across each component as none of these holds more than 3.5% share. Technology, financials, healthcare, consumer goods and consumer services all have a double-digit weight in the fund. The fund charges 6 bps in fees.

 First Trust Dorsey Wright Focus 5 ETF FV

This product tracks the Dorsey Wright Focus Five Index, which provides targeted exposure to five First Trust sector and industry based ETFs that Dorsey, Wright & Associates (DWA) believes have the greatest potential to outperform other funds in the universe. The approach results in a slightly higher fee of 89 bps per year and has AUM of $2.46 billion (read: Beat the Market with These Momentum ETFs & Stocks).

Goldman Sachs ActiveBeta US Large Cap Equity ETF GSLC

The $2.25-billion fund is designed to deliver exposure to equity securities of large-capitalization U.S. issuers. The fund is heavy on Information Technology. It charges 9 bps in fees (read: Are Stocks Really Overvalued? ETFs to Buy).

PowerShares S&P 500 High Quality Portfolio ETF SPHQ

The underlying index of the fund tracks the performance of stocks in the S&P 500 Index that have the highest quality score, determined on the basis of three fundamental measures, return on equity, accruals ratio and financial leverage ratio. From a sector look, the $1.72-billion fund is widely spread across information technology, industrials, consumer staples and consumer discretionary. Its expense ratio is 0.29% (read: Should You Buy IBM ETFs Post Q1 Result?).

iShares Core S&P 500 ETF IVV

This product tracks the S&P 500 index. IT is the top sector accounting for 22% of the portfolio while financials, healthcare, consumer discretionary, and industrials get double-digit exposure each. The $118.9-billion fund charges 4 bps in fees (read: Global ETFs Gather $4 Trillion AUM: What's Behind the Boom?).