The major averages have all hit coveted milestones this week, with the Dow
(INDEXDJX:.DJI) and S&P 500
(INDEXSP:.INX) hitting new all-time highs and the Nasdaq
INDEXNASDAQ:IXIC) recovering to levels not seen since September 2000. The persistently bullish momentum is excellent for stock portfolios, but those that have been left on the sidelines in cash may feel that they've missed out on the upside. The feeling of missed opportunity can be frustrating, however there are always areas of the market that are offering unique value if you know where to look.
The following ETFs represent pockets of opportunity that I believe can still be exploited even at today’s levels.
1. Technology Dividend Value
The technology segment has been an excellent driver of growth in 2013. However, one key segment that I find to be the most attractive for new money is dividend value technology stocks. An excellent ETF to play this trend is the First Trust Nasdaq Technology Dividend Index
(NASDAQ:TDIV). This ETF includes nearly 90 dividend-paying companies in the technology and telecommunications industries that have declared a distribution in the last 12 months.
One of the benefits of owning TDIV is that you get diversified exposure to a variety of stocks, with a commitment to returning value to shareholders through buybacks and cash dividends. The current 30-day SEC yield is 2.51% and distributions are paid on a quarterly basis. In addition, TDIV is currently sporting a price/earnings ratio of 14.87 which is much cheaper than the Technology Select Sector SPDR
(NYSEARCA:XLK) P/E of 18.12.
2. Low-Volatility International Stocks
Another undervalued theme on my radar screen is international stocks, which have not had the same shot to the moon that US stocks have had. We are continuing to see accommodative policies from overseas central banks that should set the stage for improved earnings and economic fundamentals moving forward. My preferred way to play this opportunity is through the iShares MSCI EAFE Minimum Volatility ETF
(NYSEARCA:EFAV). This ETF gives you access to over 180 stocks outside of the US that have the lowest price fluctuations of their peer group.
This low-volatility strategy seeks to minimize the peaks and valleys associated with a much more diversified international index. This can be a more attractive strategy when buying near the highs. All things being equal, a low-volatility index should have a smaller drawdown during periods of price decline, which make them perfect for conservative investors.
EFAV is overweight stocks in the UK, Japan, and Switzerland, which combined make up almost two-thirds of the total holdings. In addition, the fund charges a very modest 0.20% expense ratio, which even the most cost-conscious investor can appreciate.
3. Global Balanced Opportunity
Staying in the same theme of international exposure is a fund that takes advantage of a wide array of global opportunities. The SPDR SSGA Global Allocation ETF
(NYSEARCA:GAL) is an actively managed ETF that is designed to capitalize on the success of multiple asset classes. This “fund of funds" concept targets exposure in both equities and fixed-income using a variety of underlying ETFs to structure its asset allocation.
The portfolio is currently 70% equities and 30% bonds with an overweight exposure to international holdings. The benefit of this ETF is that the fixed income may help cushion any unexpected speed bumps while still giving you exposure to areas of the market with a high potential for capital appreciation. In addition, because the strategy is active, fund managers can shift the underlying holdings to areas that they feel will outperform over time.
All of these of these ETFs focus on areas of the market that have the potential for further capital gains but face lower volatility than their peers. A modest pullback for global stocks is certainly a possibility given the heightened levels of the market. However, savvy investors know that using volatility to their advantage can lead to long-term rewards if they are prepared to strike when the time is right.
Read more from David Fabian, Managing Partner at FMD Capital Management:
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