ETFs
Here are the 8 most profitable ETFs to invest in, according to Bank of America
It might seem like the future is here when AI Stocks Continue to Drive the Market to All-Time Highs. But according to Bank of America, investors should look to the stock rally of the 1970s for clues about where stocks will go in the years to come.
Although value stock returns have lagged growth by 230% in a low-rate environment since the global financial crisis, Jared Woodard, head of Bank of America’s research investment committee, estimates that Cheap stocks are once again poised to succeed in today’s economic environment. higher rates and inflation.
There are several reasons why value stocks could see a resurgence in the coming years.
The first is that there is a strong historical precedent of consistent outperformance of value stocks, Woodard said. In the early 1970s, the stock market was initially driven by the performance of 50 large-cap growth stocks nicknamed the Nifty Fifty until the stock market crash of 1973. During the period 1970–1978, not only value stocks achieved gains comparable to those of the stock market. Nifty Fifty before the bear market, but they also experienced a less drastic slowdown during the pullback. By 1978, value stocks had risen more than 16% per year, more than double the 8% rise in growth stocks during the same period.
Looking back at the dotcom bubble of the early 2000s, value stocks fell even less and recovered much faster than growth stocks, rising 4.6% per year between 1998 and 2002, while growth declined by 6.5% over the same period.
And in light of recent inflationary shocks, value stocks have experienced less volatility over the 2021-2023 period than growth stocks.
Bank of America
Woodard also sees rising rates as a positive development for value stocks. Growth stocks have benefited greatly from the low rates of previous years, but as rates remain high above 5% and the cost of capital has increased, value stocks are poised to benefit from this long-term move.
Then there are the long-term projections of variables like oil production, inflation and industrial production, which Woodard says have explained much of the returns of value relative to growth over the years . According to Bank of America’s analysis, future trends in these variables will lead to value stocks outperforming growth stocks by 5% annually through 2034.
Bank of America
8 ETFs to capitalize on a value rally
According to Woodard, investors looking to gain exposure to value stocks should look to exchange-traded funds in sectors such as energy, banks, consumer staples and utilities.
Utility ETFs are the cheapest relative to the S&P 500 since 2009, as investors turn to growth stocks rather than defensives. Thanks to the growing demand for energy due to the development of data centers and AI, utilities are able to perform well in the future. Woodard likes it Selected Utilities Sector SPDR Fund (XLU) And First Trust Alphadex Utilities Fund (FXU).
With supply constraints, growing demand and greater financial discipline from oil companies, energy is also an attractive value investment, Woodard said. He recommends investing in Select Energy Sector SPDR Fund (XLE), Vaneck Oil Services ETF (OIH)And Global X MLP and Energy Infrastructure ETF (MLPX).
Woodard also expects banks to perform well and says they are cheaper than the financial sector as a whole. Although large banks are expected to continue to outperform, regional banks should benefit from higher levels of clarity regarding rate cuts from the Fed, according to Ebrahim Poonawala, head of North American banking research at the Bank. of America. Woodard said investors can gain exposure to banks through the S&P Bank SPDR ETF (KBE) And Invesco KBW Bank ETF (KBWB).
Finally, Woodard sees consumer staples as another discounted sector, especially in light of persistent inflation and a more cautious consumer. But Bank of America analysts say the sector stands to benefit from measures such as retail food promotions if the economy turns south, Woodard said. He recommends the iShares US Consumer Staples ETF (IYK).