By Christine Idzelis
Hi! In this week’s ETF Wrap, you’ll get a look at how Austin Graff, a former PIMCO portfolio manager, is beating the stock market with the TrueShares Low Volatility Equity Income ETF.
Please send feedback and tips to christine.idzelis@marketwatch.com. You can also follow me on Twitter at @cidzelis and find me on LinkedIn .
A small exchange-traded fund focused on high-quality, dividend-paying stocks is beating the pummeled stock market this year even after its recent bounce which is seen as a rally marked by “euphoria” that will likely ease, according to its portfolio manager, Austin Graff.
TrueShares Low Volatility Equity Income ETF /zigman2/quotes/224243994/composite DIVZ +0.72% , which has $62.5 million in assets, has a total return of 3.1% this year through Thursday, according to FactSet data. That beats the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY +0.39% , which has lost almost 11% over the same period on a total return basis, FactSet data show.
“Right now, we’re more weighted towards value,” said Graff, portfolio manager for TrueMark Investments’s TrueShares Low Volatility Equity Income ETF, in a phone interview. Graff, who is a former PIMCO portfolio manager, said the actively managed ETF is concentrated and holds both value and growth stocks.
The U.S. stock market has surged in recent weeks , with the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.23% exiting bear market territory on Wednesday, according to Dow Jones Market Data. Growth stocks have been pummeled this year but are outperforming value so far in the third quarter, as investors see signs of easing inflation potentially leading to a less aggressive Federal Reserve.
Graff isn’t planning any big portfolio shifts at the moment.
“There’s been a lot of rhetoric around peak inflation,” with the assumption that “it’s going to decline as rapidly as it went up,” he said. The “knee-jerk reaction” has been for equities to climb higher as interest rates went down, said Graff, pointing to the yield on the 10-year Treasury note.
The 10-year yield has dropped from its peak this year of 3.482% on June 14, according to Dow Jones Market Data. On Thursday, the 10-year yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.20% rose 10.6 basis points to 2.886%.
Growth stocks — which are sensitive to higher interest rates and were hurt as the 10-year yield rose earlier this year — could keep outperforming if the long-term Treasury rate keeps falling, according to Graff.
But in his view, the recent stock-market rally reflects “short-term euphoria that will likely ease” as the Fed continues battling stubbornly high inflation. He expects that means stocks in the Nasdaq-100 index /zigman2/quotes/210598364/realtime NDX -0.25% and some of the “high-flying” companies in the S&P 500 are poised for a decline.
Invesco QQQ Trust /zigman2/quotes/208575548/composite QQQ -0.25% , which tracks the Nasdaq-100 index and provides exposure to tech, growth and large-cap stocks, has tumbled more than 18% this year after surging more than 15% so far this quarter, FactSet data show.
The Federal Reserve has been aggressively hiking its benchmark interest rate to combat high inflation. “I think the Fed has a lot longer to go,” said Graff. To his thinking, interest rates aren’t going to “just revert back to being accommodative” in the next two to six months.
In the meantime, Graff said that it’s his job to find companies in which he can invest by “paying very little for as much growth as possible.”
UnitedHealth Group Inc. /zigman2/quotes/210453738/composite UNH +3.37% , one of his 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 valuation that’s cheaper than the market,” he said, adding that UnitedHealth is the second largest holding in the TrueShares Low Volatility Equity Income ETF.
Within tech, Graff said his portfolio includes cybersecurity company NortonLifeLock . The stock was not in the firm’s top 10 holdings as of Aug. 11, according to data on the ETF’s website .
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