As investors move toward the late innings of the economic cycle, it’s worth considering a handful of sector ETFs.
Money managers are increasingly growing nervous over an upcoming recession amid higher interest rates and tighter credit availability, CNBC reports.
“It’s a classical late cycle story. So, when I was here last time, I said we were long and nervous. We are no longer long, we are increasingly nervous about this,” Roelof Salomons, chief strategist at Kempen Capital Management, told CNBC.
Salomons pointed out that the evidence for a late cycle is all there, icnluding a flatter yield curve, which usually predicts an upcoming recession where the yield curve inverts; credit spreads are widening, suggesting that investors are afraid of risks; and defensive stocks are outperforming.
“It is too early for the economy to rollover but for markets it is time to get back home,” Salomons added, suggesting that as investors are taking fewer risks and showing a preference for U.S. stocks.
Late-Cycle Sectors
Laurent Godin, senior equity analyst at Indosuez Wealth Management, argued that investors whom believe we are heading toward the end of the bull market should play it out with overweight sector exposures to technology, financials and energy.
“They are also the sectors that currently benefit from the most net analyst upgrades for the coming quarters. However, equity markets will face a more volatile environment in the coming months with limited upside, in our opinion,” Godin told CNBC.
ETF investors interested in gaining targeted exposures to these late-cycle sectors have a number of sector-specific options to choose from. For instance, among the largest broad technology sector-related ETFs, investors can look to the Technology Select Sector SPDR Fund (NYSEArca: XLK) , Vanguard Information Technology ETF (NYSEArca: VGT) and iShares U.S. Technology ETF (NYSEArca: IYW).
For financial sector and related ETFs exposure, investors can turn to options such as the Financial Select Sector SPDR (NYSEArca: XLF), Fidelity MSCI Financials Index ETF (NYSEArca: FNCL), iShares U.S. Financials ETF (NYSEArca: IYF) and Vanguard Financials ETF (NYSEArca: VFH).
Lastly, the Energy Select Sector SPDR (NYSEArca: XLE), Fidelity MSCI Energy Index ETF (NYSEArca: FENY) and Vanguard Energy ETF (NYSEArca: VDE) provide exposure to the broad energy sector.
For more information on the market sectors, visit our sector ETFs category.