The S&P 500 just wrapped up its second consecutive year of 20%-plus gains — and the AI revolution has helped the Magnificent Seven stocks lead that charge. This year, however, presents new potential challenges and new best ETFs.
A new president is likely to usher in sweeping economic policy changes. And it no longer looks like the Fed is going to be doing much rate cutting this year. With the macro environment changing, are the potential winners in this market about to change as well?
Judging by his ETF picks this month, Brian Krukiel, the founder of Foundation Wealth Partners, believes they could. His firm's focus on investment management and asset allocation without cookie cutter or proprietary investments allows them to dig deep into ETFs. He looks for opportunities that may be under the market's radar.
Shifting Focus Away From Tech
It's clear from Krukiel's ETF picks that his strategy lacks a focus on growth or tech. In fact, his focus is on a very opposite theme — yield. Short-term and long-term yields both remain elevated and that presents real opportunity for income investors. The natural inclination might be to steer toward risk-free Treasury bills that are still yielding around 4%. Krukiel sees some opportunities in areas beyond the traditional fixed income asset classes.
Playing The Energy And Infrastructure Boom
With President Trump likely to de-emphasize clean energy initiatives and focus on traditional fossil fuels, Krukiel feels that infrastructure plays could get a big boost. That's why he likes the Global X MLP And Energy Infrastructure ETF, which targets midstream infrastructure partnerships that offer high yields.
He notes that the U.S. is set for substantial grid enhancements with planned investments of around $22 billion for power transmission to support the increasing energy demands from sectors, including AI and data centers. His focus on deregulation could also lead to faster development of fossil fuel infrastructure. That may reduce costs and timelines for new oil, gas, nuclear and even potentially some renewable projects.
The energy demand from AI development is also likely to present an opportunity for Master Limited Partnerships (MLPs). "As AI operations expand, the need for robust, reliable energy infrastructure, including natural gas pipelines and electricity transmission, grows exponentially. MLPs are uniquely positioned to supply the steady, high-volume energy required, potentially leading to increased revenues, expanded infrastructure projects, and higher distributions to investors," he said.
He also believes there's potential in the natural gas space where the expectation that Trump will reverse former President Biden's pause on new export permits could be a catalyst.
The Return Of Value Investing
With mega-caps and tech dominating the markets over the past couple of years, there hasn't been much opportunity for value to outperform. Krukiel feels that the landscape might be positioning to change that. He prefers the WisdomTree U.S. Value ETF not just for its focus on fundamentally undervalued companies, but for two other factors that go beyond that.
First, Krukiel likes that WTV also looks for companies with favorable relative quality characteristics and high shareholder yields, which combine both dividend payments and share buybacks. "This dual approach can potentially lead to higher total returns for investors, as it captures not just the income from dividends, but also the value enhancement from reduced share count, making it an attractive strategy for those seeking both income and capital appreciation," he said.
Second, he likes that WTV has significant exposure to midcap companies instead of just the traditional large-cap tilt. He finds midsize companies can combine the growth potential of smaller firms with the stability of larger ones. "Midcaps are often in a sweet spot for growth, having overcome the volatility of small caps, but still offering significant upside potential compared to large caps, making this ETF particularly attractive for investors looking for a balance of growth and value in their portfolio," he said.
Boosting Portfolio Yield Beyond Traditional Fixed Income
One of the hottest fixed income categories over the past year has been collateralized loan obligations (CLOs). These packages of loans can offer potentially higher yields for comparable risk and have become big business in the ETF marketplace. Krukiel notes that retail investors are just only now getting in on the trend.
"Previously, the CLO market was largely accessible only to institutional investors due to the complexity and size of investments. PAAA offers retail investors exposure to this $1.2 trillion market, which might not be easily accessible otherwise," he said.
His pick in this space is the PGIM AAA CLO ETF. As the name suggests, it only invests in CLOs that come with a AAA rating and offers a 30-day yield of 5.8% as of Dec. 31.
In particular, Krukiel likes the current yield-to-risk trade-off and feels that CLOs could be built for this type of environment. "In an environment where investors might be seeking alternatives to traditional money market funds, CLOs, especially those rated AAA, could offer a more attractive yield with a perceived safer profile due to their seniority in the capital structure of the CLOs," he said. "This could be particularly appealing in a scenario where the direction of interest rates are uncertain or if inflation remains sticky."
Outside of that, he also thinks they make a good option for anyone simply looking to park some cash. "With anticipated equity market volatility, PAAA serves as an ideal parking spot for funds, offering a competitive yield with virtually no duration risk, thus maintaining liquidity and capital preservation while still generating income," he said.
Brian Krukiel
- Foundation Wealth Partners
- Founder
- Krukiel thinks the nation's political shift will dramatically change investors' strategies, rewarding value stocks and yield.
