Growth and Value ETFs

Remember when every Tom, Dick and Gary insisted that interest rates were going to rise in 2014? Well, not every Gary. There are a few of us who expected rates to fall. (See Against the Herd: Lower Rates, Not Higher Rates, In 2014.)

Keep in mind, the U.S. Federal Reserve is holding onto roughly 40% of all U.S. Treasuries over five years in maturity. Even with tapering, the Fed is still acquiring an astounding chunk of sovereign debt in existence with the current pace of bond buying at $45 billion per month. It follows that there are not a whole lot of bonds left out there for foreign governments, global investors, pensions and private citizens. Even modest demand for safety or yield can move the needle when supply is limited. Prices go up, yields go down.

U.S. stocks as an asset class are likely to hold up for as long as the Fed can engineer a low interest rate environment.  With the 10-year now at 2.45% and falling, even recent declines in real estate sales may reverse themselves; cheaper mortgage payments would improve affordability.

Still, my preference on U.S. assets is to own “value.” I cannot wrap my head around the exorbitant prices that some have been willing to shell out for “Twitters” and “Teslas.” I still prefer the dividend producing technology corporations that trade at venerable discounts to the broader S&P 500. Oracle, Microsoft, Apple, IBM — these are the “old tech” leaders that you can get in First Trust Technology Dividend (TDIV).

“Growth” is still worth owning, but only at reasonable prices. That means you should be looking overseas in your ETF selection process. You can get a basket of profitable Asian corporations for a price that you might have paid three years ago. I favor iShares MSCI Asia excluding Japan (AAXJ).