The U.S. economy is remarkably resilient. And so is the stock market. Wall Street has mostly shrugged off concerns about persistent inflation, higher interest rates and slowing growth this year. Susan Kaplan, president of Kaplan Financial Services, expects that to continue, even though stocks and the best ETFs have fallen victim to a typical September swoon.
Kaplan said that the market volatility of the past month doesn't rattle her. In fact, it gives her more attractive investing options.
"The biggest risk for the markets is emotional. To say that the average investor is skittish is an understatement," Kaplan said, adding that any investor who panicked after the dot-com bubble burst in 2000 or during the financial sector implosion in the fall of 2008 would have missed out on a great buying opportunity.
"Every single time it has paid to ride it out," said Kaplan, who started her Newton, Mass.-based firm in 1993 and now manages $2.7 billion in assets. Kaplan is in the top 10 of Barron's 2023 Top Women Financial Advisors. "The opportunity in turbulent times is to buy companies that dominate their field at low prices due to the fears of your fellow investors," she said.
With that in mind, here are three exchange traded funds that Kaplan recommends right now. They all own a big chunk of quality large-cap companies that should thrive as long as the economy chugs along at a decent clip.
Best ETFs: Sticking With Tech
Kaplan's first pick among the best ETFs is Invesco QQQ. The popular fund tracks the Nasdaq 100, which includes the largest nonfinancial firms in the index. In other words, a healthy dose of tech. Apple, Microsoft, Amazon.com, Nvidia and Facebook owner Meta Platforms are the top five holdings.
"Tech is an essential part of the mix," Kaplan said. "Major tech stock values have not risen with hopes and dreams. They have locked in incredible revenue and profits. These real earnings have justified the stock prices."
The market clearly is obsessed with big tech right now. The QQQ ETF was up nearly 35% through the end of September. But Kaplan notes that "our portfolios hold and have held a significant tech presence for decades."
Cash Is King For Best ETFs
Kaplan's second ETF pick is the Pacer US Cash Cows 100. This fund screens the Russell 1000 — a popular large-cap index and alternative to the more well-known S&P 500 — to find the companies with the highest free-cash-flow yield. That metric looks at the amount of free cash flow a company generates per share divided by its stock price.
This ETF owns companies with an ample amount of money on hand. That allows them to use the cash to pay dividends, buy back stock and pay down debt.
"U.S. business has never been so dominant in the world in the entire history of this country. Owning these companies will only enrich the investor," Kaplan said.
The Cash Cows 100 fund does own a lot of energy stocks. Valero was the fund's top holding as of late September, while Marathon Petroleum, Phillips 66, Exxon Mobil and Chevron were among the 10 largest positions. But the COWZ ETF also owns big stakes in medical supplies maker McKesson and drugstore giant CVS, which are the fund's second- and third-largest positions.
The fund also has tobacco maker Altria, homebuilder Lennar and tech giant Cisco Systems among its top 20 holdings. Kaplan says it's important to buy these types of cash-rich firms because a healthy balance sheet is "certainly a measure of stability." To that end, the fund has easily outperformed the Russell 1000 over the past three years.
Shop Till They Drop
Kaplan's final pick among the best ETFs is one that takes advantage of the seemingly never-ending desire of U.S. consumers to keep buying stuff: the Vanguard Consumer Discretionary fund. Kaplan calls the fund "a bellwether for spending trends."
"I am not concerned about inflation," Kaplan said. "Earnings, spending and wage increases have all exceeded expectations this year. The economy is robust."
The fund's 2023 performance is seemingly a reflection of that. The VCR ETF has gained 23% so far this year. And the top holdings represent a wide swath of the American consumer economy, including companies popular with both the middle-class and affluent alike.
Amazon is the biggest position, followed by Elon Musk's Tesla. Others in the top 10 range from fast- food leader McDonald's and TJX, the owner of discount retailers Marshalls and TJ Maxx, to housing supply giants Home Depot and Lowe's. Also in the top-10 mix are providers of "affordable luxuries" Starbucks and Nike.
Susan Kaplan
- President.
- Kaplan Financial Services.
- Don't let the market's recent declines disrupt your long-term investment strategy, Kaplan says. Top growth stocks with solid cash flow will continue to pay off over time.
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