With uncertainties plaguing markets in 2023, investors must stay nimble and disciplined. But this year offers new opportunities to investors looking for the best ETFs for their portfolios.
That's the message that Aniket Ullal, head of ETF Data Analytics at CFRA, conveys. And his words carry weight. CFRA is one of the world's largest independent investment research firms that does not have a vested interest in any of the funds it analyzes.
"Despite the volatility in the market, it's important for investors to stay the course, in other words to
stay invested, and not just exit the market when there's volatility," Ullal told Investor's Business Daily. "Given what happened in 2022, there will be opportunities for investors."
Looking For Opportunities
He said valuations are more attractive now due to the declines of last year: "We do think investors may start to come back into certain asset classes." He expects returns this year to be better than 2022.
Ullal has worked in the financial services industry for 25 years, including 16 of which with ETFs. In 2010, he founded First Bridge Data, an ETF data and analytics firm for institutional investors. Upon selling his firm to CFRA in 2019, he joined the CFRA team where he's been overseeing ETF data and analytics ever since.
CFRA does not hold assets. Instead, the firm focuses on four branches of equity research: forensic, fundamental, technical and policy. Its research clients include brokers, financial advisors, institutional and individual investors, financial marketers, corporate and professional services, as well as libraries and academics.
Ullal shared his top three ETF picks for investors' bucket list this year.
Finding Three Best ETFs
His first pick among the best ETFs is GlobalX S&P 500 Quality Dividend. While dividend funds abound, Ullal likes QDIV for its quality focus and a low fee of just 0.2%, "which is quite attractive for an ETF that's providing exposure to specific factors."
The $64 billion fund selects stocks of high-quality companies that score in the top 200 of the S&P 500 index. It picks those that show strong characteristics in various quality metrics such as return on equity, financial leverage and accruals. In addition, to qualify for the ETF, a company must also score in the top 200 for its dividend yield.
"There's still uncertainty in the macro environment," said Ullal. "Even though inflation is falling, it's still above 6%. There's a possibility for a shallow recession — that seems to be the consensus for this year. So, investors are focusing a lot on businesses that generate cash and have a little bit more focus on income."
QDIV is up 3.55% this year and pays a dividend yield of 3%.
Investing Beyond The U.S.
His second best ETF pick is iShares MSCI India. The $4.9 billion fund invests in large and midcap firms in India. It provides a targeted access to the Indian stock market.
"We picked INDA for two reasons," said Ullal. "The first is that it has a lower expense ratio of 0.64%
compared to iShares India 50, which is 0.89%. So, it's cheaper. And the second thing, it's a little bit more diversified. It has 113 holdings, both large and midcap stocks, relative to INDY, which is only the top 50 stocks."
The reason he likes INDA is because of the demographic story in India. "India is actually going to
overtake China as the world's most populated country. And a significant proportion of that population is actually (just getting) into the working age." So this demographic story will result in a population that will be quite productive over the next few decades.
In addition, India was one of the fastest growing markets last year in terms of the GDP growth among
the major economies, he noted. With technology and innovation, this growth is expected to continue.
The fund is down 2.13% so far this year.
Digging For Gold
Ullal's third ETF pick is iShares Gold Trust Micro. The $1.2 billion fund is the lowest-cost physical gold ETF. It tracks the day-to-day movement of the price of gold bullion. Its annual fee is just 0.09% and the fund is up 5.71% this year so far.
Ullal believes the fund might provide a hedge against macroeconomic risks remaining in the system.
"If those (risks) play out and affect the markets, we think there may be a flight to safety to gold," he
said. He explained that normally, when there's a flight to safety, it is to U.S. bonds. But with the U.S.
debt at historical levels, this time it may be to gold instead.
Another tail wind are the younger investors who in 2022 thought of Bitcoin or cryptocurrencies as a store of value.
"But, as we saw last year, that didn't really pan out like that," said Ullal. "Bitcoin also declined even
though the rest of the market declined. So, it's possible that some of that money could actually come
back into gold."
Aniket Ullal
- CFRA
- Head of ETF Data Analytics
- Ullal thinks investors must stay invested despite the market's swings. But he also thinks opportunities might lie in some nontraditional asset classes.
