As market conditions shift, exchange traded fund investors should be willing to adapt and focus on areas of the market that look more promising ahead.
Goldman Sachs is advising investors to underweight the S&P 500 and look for other indices, like the Nasdaq, that have more upside, reports Julie Verhage for Bloomberg.
“We expect the S&P 500 will reach 2100 by year-end, representing a 2% price gain from the current level,” Goldman analysts said. “Given limited S&P 500 upside, we recommend investors buy the Nasdaq 100, which trades at a modest P/E premium to the S&P 500 (18x vs. 17x) despite having much higher expected EPS growth (14% vs. 5%).”
Investors who are interested in the Nasdaq 100 can utilize the the PowerShares QQQ (NasdaqGM: QQQ) to track the tech heavy index. QQQ currently shows a 20.1 price-to-earnings ratio and a 3.9 price-to-book. Meanwhile, the SPDR S&P 500 ETF (NYSEArca: SPY) has a 18.2 P/E and a 2.6 P/B.
Additionally, the investment bank is bullish on the technology, energy and telecommunication services sectors.
For tech exposure, there are a number of broad ETFs to select from, including the Technology Select Sector SPDR (NYSEArca: XLK), iShares U.S. Technology ETF (NYSEArca: IYW) and Vanguard Information Technology ETF (NYSEArca: VGT). XLK tracks the tech sector from the S&P 500 index. IYW also tracks a similar group of tech companies taken from the Dow Jones U.S. Technology Index and does not include telecom stocks. VGT, on the other hand, includes a small position in information technology services companies. Year-to-date, XLK rose 0.5%, IYW added 0.3% and VGT returned 1.1%.