Let’s go beyond large-cap US tech stocks and look at some ETFs that don’t include them in their portfolios.
Today’s investors face a crucial challenge: diversifying their U.S. stock portfolios without increasing exposure to large-cap technology stocks. While the “Magnificent 7” ((Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla) remain dominant, numerous investment opportunities exist outside of the traditional S&P 500 Index.
Here are 3 ETFs that offer attractive options for diversifying your US allocations.
1. Pacer US Cash Cows 100 UCITS ETF (COWZ)
The Pacer US Cash Cows 100 UCITS ETF (COWZ) adopts a strategy focused on free cash flow (FCF), ensuring a solid financial foundation for the companies included. The ETF, listed on Euronext Dublin and Amsterdam, tracks the Solactive Pacer US Cash Cows 100 index, which selects the 100 components of the Russell 1000 with the best FCF performance.
This emphasis on free cash flow ensures that businesses can easily manage their financial obligations and promptly invest in new opportunities. In times of high interest rates, a solid cash flow foundation is especially crucial. Companies included in the index have an average FCF yield of 7.9%, well higher than the Russell 1000’s 2.9%, suggesting that these companies may be undervalued relative to their cash flow. COWZ has outperformed the largest S&P 500 ETF, SPY, with a return of 111.5% versus SPY’s 92.6% over the past five years.
2. VanEck Morningstar US Wide Moat UCITS ETF (MOTU)
The VanEck Morningstar US Wide Moat UCITS ETF (MOTU) offers a unique approach focused on companies with durable competitive advantages, known as "economic moats". This concept, popularized by Warren Buffett, identifies companies with cost leadership, economies of scale, network effects, and intangible assets such as brand strength.
MOTU tracks the Morningstar Wide Moat Focus Index, which selects 50 companies with strong competitive advantages. The ETF has sector diversification that includes 20.8% in healthcare, 17.9% in industrials, 15% in IT and 14.3% in financials. This targeted selection has allowed the ETF to outperform SPY since its launch, thanks to the choice of companies with high barriers to entry into the market.
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3. JPM US Research Enhanced Index Equity (ESG) UCITS ETF (JREU)
The JPM US Research Enhanced Index Equity (ESG) UCITS ETF (JREU) is the only active ETF on our list and stands out for its "index-plus" approach. Despite having the S&P 500 as a benchmark, JREU overweights or underweights index components based on individual valuations and earnings prospects.
Since its launch in 2018, JREU has returned 115%, surpassing SPY’s 92.1%. This ETF has attracted significant European investment thanks to its differentiated approach and modest 0.20% fee. While superior to low-cost S&P 500 trackers, JREU offers active management that can provide added value through thoughtful selections.
Some ETFs offer a wide range of opportunities to diversify your U.S. stock portfolio beyond the usual large-cap tech names. From a focus on free cash flow and economic moat strategies to weighted balance and quality small-cap selection, the ETFs featured offer unique and potentially profitable ways to expand your allocations. Diversifying your portfolio with these ETFs can help investors mitigate risks and capture new growth opportunities in the U.S. stock market.
| Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings. |
Original article published on Money.it Italy 2024-07-29 10:14:00. Original title: 3 ETF sull’azionario americano senza le “Magnifiche 7”
