According to analysis by Astoria Portfolio Advisors, investors should focus on other investment opportunities besides large-cap stock funds next year, but this does not mean that they must adopt an overly defensive strategy. John Davi, CEO and chief investment officer of Astoria, said that a large amount of money has flowed into funds tracking the S&P 500 this year, which shows that investors should look to other areas of the stock market for more cost-effective opportunities. Davi said: "It's hard for me to remain overly optimistic. We said we would tone down our optimism a little bit, but we are still optimistic about some relatively positive themes."
Astoria, which builds ETF portfolios for clients and advises on some funds, also publishes a list of top ETFs for the coming year, with this year’s list focused on finding investment opportunities that could outpace the bull run driven by big tech companies over the past two years.
Customized Index
Two funds Astoria recommends are the ALPS O'Shares U.S. Small Cap Quality Dividend ETF (OUSM) and the WisdomTree U.S. Small Cap Quality Dividend Growth Fund (DGRS). Both funds track customized indexes and have performed solidly through 2024, albeit slightly behind the S&P 500. So far, OUSM is up about 20%, while DGRS is up about 18%. The shift to small-cap stocks is partly due to the belief that large-cap stocks and some large tech stocks are overvalued, and some companies that are not in those large-cap ranks appear more attractive. "There are actually a lot of companies that are growing faster than the 'Big Seven,'" Davi said.
Trump's election impact
The impact of Trump's election is also reflected in Astoria's list of ETF recommendations. Astoria includes the Invesco KBW Bank ETF (KBWB) and the AltShares Merger Arbitrage ETF (ARB), which could benefit from lighter regulatory policies in the financial sector and less regulation of mergers and acquisitions. "If Trump's cabinet completely changes regulatory policies, banks and merger arbitrage will have a boom," Davi said. The Invesco KBW fund seems to have started to rise due to the election results and has risen about 14% in November. However, the AltShares fund has changed less and is a small ETF with less than $100 million in assets. The fund actually bets that announced mergers will be completed, thereby earning the "arbitrage" difference between the bid and the target stock price. If the new administration prompts a large number of mergers and acquisitions, this fund may be more popular. The fund's website says it aims to provide low volatility and low correlation with stocks and bonds, so it may not be the biggest relative winner if the market rebounds continuously.
Cryptocurrency catch-up
One of the biggest highlights of the ETF market in 2024 is cryptocurrency funds, with Astoria including the Bitwise Ethereum ETF (ETHW) on its recommended list for next year. The Bitwise fund is the fourth largest spot Ethereum ETF, behind Grayscale and iShares' Ethereum Trust ETF (ETHA). Although the Ethereum fund has not performed as strongly as the Bitcoin fund, it may usher in a catch-up rally. "Ethereum is still 36% up from its all-time high, so I think it has more room to rise than Bitcoin," Davi said on Tuesday. However, Davi also said that he prefers to have a more diversified cryptocurrency ETF. Investors may soon have such a choice as asset managers are preparing to launch a variety of new cryptocurrency funds if the Trump administration is more friendly to the industry as expected.
Article forwarded from: Jinshi Data
