With the U.S. economy increasingly appearing set to make a “soft landing” in its inflation fight, growthier investments have done well. Whereas markets entered the year with widespread predictions of a recession, instead the S&P 500 has grown nearly 20% YTD. How, then, should advisors move forward taking care of lingering issues while benefitting from growth? Adding portfolio diversification in a growth ETF like BFOR could be a notable option.
What challenges out there merit adding some additional portfolio diversification? For one thing, consider how fast rates have risen in the United States. Many economic leaders in tech, for example, have benefitted from a post-Great Recession regime of low interest rates. That regime has shifted significantly and quickly, but those firms won’t feel the full impact for some time yet.
That’s because rate hikes tend to have about a twelve-month lag to affect the economy overall. That means a tighter credit market may only now be impacting firms that already had questionable balance sheets or that have failed to deliver on high valuations. Meanwhile, while inflation has cooled noticeably since last year, it remains a challenge in terms of energy costs. Rising rates also make the dollar stronger and of course, more expensive.
Still, there are good reasons why growth investing remains a powerful tool in investors’ portfolios. The end of rate hikes suggests a somewhat more predictable environment at least in terms of government action and policy impacts on macro conditions. Having a smart growth approach in a portfolio can be a solid option, especially if it adds portfolio diversification.
Enter the ALPS Barron's 400 ETF (BFOR). The strategy combines low-concentration risk relative to its peers with a growth approach. Per VettaFi, BFOR has just 17.4% of its assets in the top 50 holdings compared to about 72% for its ETF Database Category and FactSet Segment averages. Its equally-weighted approach to the Barron’s 400 index helps diversify it away from some of the biggest holdings.
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Add in its use of growth at a reasonable price (GARP) methodology and the ETF produces a tilt towards smaller firms. It also caps sector exposure at 20%. Taken together, it has returned 17.9% over the last year for a 65 basis point (bps) fee. For those investors looking for an interesting way to add portfolio diversification, BFOR may be one to watch.
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