Passive investing through exchange-traded funds (ETFs) may be losing its appeal.
Gavin Fillmore, chief revenue officer at Tidal Financial Group, has noticed that many of his clients are no longer satisfied with buying popular ETFs that track market indexes.
“I think investors are looking beyond just what I would call the ‘VOO and chill approach’ of just buying an index in an ETF, which is a great approach, but they’re looking for diversification,” Fillmore said this week on CNBC’s “ETF Edge.”
Filmore refers to the Vanguard S&P 500 ETF (VOO), which tracks the performance of the S&P 500. Both are up about 16% since the beginning of the year.
“Unbalanced is the right word.”
Meanwhile, Todd Thorne of Strategas Securities argues that investors are losing diversification by using the S&P 500 as a benchmark.
“Imbalance is the right word,” the firm’s senior ETF and technical strategist said in the same interview. He added that technology now accounts for more than 35% of the index, an all-time high.
Meanwhile, defensive sectors such as consumer staples, health care, energy and utilities account for 19% of the S&P 500 index, an all-time low, according to FactSet.
So where are traders looking? Son sees a resurgence of interest in small-cap stocks.
The Russell 2000, which tracks the group, hit an all-time high on Wednesday, fresh off its best week since August. It is currently up more than 28% over the past six months, outperforming the S&P 500. Earlier this month, the Russell 2000 index exceeded 2,500 for the first time in history.
“Are we seeing this expansion happening outside of large-cap stocks where investors are happy with their exposure to technology and AI and are looking for other routes,” Song said.
While there is growing support for small-cap stocks, a heavy hitter will take center stage on Wall Street next week. At that time, five of the seven so-called “Magnificent Seven” companies (Metaplatform, Alphabet, Microsoft, Apple and Amazon) are expected to release their latest earnings.
