This dividend-paying ETF is beating the stock market this year — and its manager expects the recent ‘euphoria’ in stocks won’t last

Hi! In this week’s ETF Wrap, you’ll find out how Austin Graff, a former portfolio manager at PIMCO, beats the stock market with the TrueShares Low Volatility Equity Income ETF.

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A small exchange-traded fund focused on high-quality, dividend-paying stocks beats the struggling stock market this year, even after its recent rebound which is seen as a rally marked by “euphoria” that is likely to subside, according to its portfolio manager, Austin Graf.

TrueShares Low Volatility Equity Income ETF DIVZ,
+1.14%,
which has $62.5 million in assets, has a total return of 3.1% this year through Thursday, according to FactSet data. This beats the SPDR S&P 500 ETF Trust SPY,
,
which has lost nearly 11% over the same period on a total return basis, according to FactSet data.

“Right now, we’re more value biased,” Graff, portfolio manager of TrueMark Investments’ TrueShares Low Volatility Equity Income ETF, said in a phone interview. Graff, who is a former PIMCO portfolio manager, said the actively managed ETF is focused and holds both value and growth stocks.

The US stock market has surged in recent weeks, with the Nasdaq Composite COMP,
-0.58%
break out of bear market territory on Wednesday, according to Dow Jones Market Data. Growth stocks have taken a beating this year, but have outperformed value so far in the third quarter as investors see signs of slowing inflation, which could lead to a less aggressive Federal Reserve.

Graff does not foresee any major portfolio changes at this time.

“There’s been a lot of rhetoric around peak inflation,” with the assumption that “it’s going to come down as quickly as it went up,” he said. The “gut reaction” was for stocks to rise as interest rates fell, Graff said, pointing to the yield on the 10-year Treasury.

The 10-year yield fell from its peak this year of 3.482% on June 14, according to Dow Jones Market Data. On Thursday, the 10-year yield TMUBMUSD10Y,
2.886%
rose 10.6 basis points to 2.886%.

According to Graff, growth stocks – which are sensitive to rising interest rates and suffered from the rise in the 10-year yield earlier this year – could continue to outperform if the long-term Treasury rate continues to rise. to lower.

But in his view, the recent stock market rally reflects “near-term euphoria that is likely to subside” as the Fed continues to battle stubbornly high inflation. He expects that to mean shares in the Nasdaq-100 NDX index,
-0.65%
and some of the “high-flying” S&P 500 companies are on the verge of decline.

Invesco QQQ Trust QQQ,
-0.57%,
which tracks the Nasdaq-100 index and offers exposure to tech, growth and large-cap stocks, has fallen more than 18% this year after jumping more than 15% so far this quarter, the data shows. of FactSet.

The Federal Reserve aggressively raised its benchmark interest rate to fight high inflation. “I think the Fed still has a long way to go,” Graff said. Interest rates won’t “simply become accommodative again” in the next two to six months, he said.

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In the meantime, Graff said it was his job to find companies he could invest in while “paying very little for as much growth as possible.”

UnitedHealth Group Inc. UNH,
-0.90%,
one of its bets in the traditionally defensive healthcare sector is growth-oriented, according to Graff. “It’s a company that’s growing faster than the market but trading at a cheaper valuation than the market,” he said, adding that UnitedHealth is the second-largest holding in the TrueShares Low Volatility Equity Income ETF. AND F.

Within technology, Graff said its portfolio includes cybersecurity firm NortonLifeLock NLOK,
-1.19%.
The stock was not among the company’s top 10 holdings as of Aug. 11, according to data from the ETF’s website.

Graff sees “a bifurcation” in how investors now view growth, explaining that some “value names” are expected to grow faster than some growth stocks while trading at low valuations. For example, “we have a significant position in some of these oil and gas E&Ps that are growing faster than the general market,” he said.

The ETF’s largest holding is Exxon Mobil Corp. XOM,
+2.89%,
with the fund’s other energy positions, including Devon Energy Corp. NDV,
+7.34%
and Coterra Energy Inc. CTRA,
+3.53%,
the website shows.

As an indirect “clean energy play”, the TrueShares Low Volatility Equity Income ETF also has exposure to electric utilities that are increasing their transmission networks, as opposed to the ETF that invests directly in, for example, a solar company, according to Graff.

“It’s a more value-conscious way to play green power,” he said, citing the fund’s position in American Electric Power Co. AEP,
-0.14%
and FirstEnergy Corp. EF,
+1.37%
as examples.

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As usual, here’s your weekly overview of the best performing ETFs from last week through Wednesday, according to data from FactSet.

Good…
Best performers

%Performance

ETF VanEck Rare Earth/Strategic Metals REMX,
+0.90%

11.1

First Trust Nasdaq Oil & Gas ETF FTXN,
+4.74%

6.5

iShares US Oil & Gas Exploration & Production ETF IEO,
+4.23%

6.4

AdvisorShares Pure US Cannabis ETF MSOS,
+1.17%

5.6

iShares US Energy ETF IYE,
+3.34%

5.3

Source: FactSet data through Wednesday August 10, excluding ETNs and leveraged products. Includes ETFs traded on the NYSE, Nasdaq and Cboe of $500 million or more.

…and evil
The worst performers

%Performance

VanEck Semiconductor ETF SMH,
-0.02%

-2.7

FlexShares iBoxx 5 Year Target Duration TIPS Index Fund TDTF,
-0.12%

-0.9

VanEck Preferred Securities ex Financials ETF PFXF,
+0.41%

-0.8

VanEck High Yield Muni ETF HYD,
-0.04%

-0.7

JPMorgan US Aggregate Bond ETF JAGG,
-0.46%

-0.7

Source: FactSet

New ETFs

JP Morgan Asset Management announced on August 9 the launch of the JPMorgan Active Growth ETF JGRO,
-0.44%,
an actively managed pure growth ETF that seeks to outperform the Russell 1000 Growth Index.

Strive Asset Management announced on August 10 that it has launched its flagship index fund, the Strive US Energy ETF DRLL,
+3.30%
“to unlock the potential of America’s energy sector.”

Weekly ETF Readings

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