In good and bad times, Cabot Wealth focuses on quality and long-term investments. This includes creating a core portfolio of stocks and bonds, and selecting some of the best ETFs that represent that view.
With about $1 billion in assets under management, the Salem, Mass.-based boutique investment advisory firm caters to high-net-worth individuals, families and small institutional clients. It's managed to keep its turnover low thanks to its smart and client-focused allocation.
"We're fairly long-term investors, so even in the individual stock strategy that I manage, turnover has been below 20% over nearly 10 years," said Craig Goryl, chief investment officer and partner at the firm. "I do try to pick things that I can hold onto for a long time and I would say that that's true of my ETF picks also."
Keeping Turnover Low For Best ETFs
The firm celebrates its 40th anniversary this year. It was founded by Robert Lutts, CEO, and is owned by its five managing partners.
Goryl has been managing core equity portfolios for Cabot for 12 years. Before that, he worked at a research firm and Putnam Investments. He shared with Investor's Business Daily his three best ETF picks in today's economic environment.
"I think the Federal Reserve is going to have to continue threading the needle between tamping down inflation and keeping us out of, or at least minimizing, recession," he said. "That's a very difficult balancing act."
Go For Quality
His first best ETF pick is iShares MSCI USA Quality Factor. As its name suggests, the $25.3 billion fund invests in large and midcap firms that show strong fundamentals. Those include a high return on equity, stable yearly earnings growth and low debt.
"I think these are good characteristics for the core of a portfolio, and they are similar to the process I use when I select individual stocks," said Goryl. "I look for wide moats, trustworthy managements and balance sheet strength."
With 124 holdings, the fund is well diversified with the largest position just over 5%. The fund is up 5.87% this year. It charges a low 0.15% yearly management fee. Some of the top holdings where Goryl's stock strategy and this ETF overlap are Home Depot, Visa and Apple.
Seek Momentum
The second ETF he likes is Invesco S&P MidCap Momentum. The $1 billion fund invests in the 80 securities in the S&P Midcap 400 index that have the highest momentum scores. These are calculated by measuring the upward price movements of each stock vs. other eligible stocks in the index.
"It is a good complement to the 'blue chip' type names owned in QUAL, because there is very little overlap, and these add some growth," said Goryl. "XMMO's exposures will adapt to changes in leadership in the markets."
XMMO holds 77 stocks. Top holdings include Reliance Steel & Aluminum, Axon Enterprise, Unum Group and Lincoln Electric Holdings. The fund is down 2.13% so far this year. It provides an SEC yield of 1.25% and costs 0.33% per year to hold.
Boosting Best ETFs With Bonds
The third top ETF pick is in the bond space. JHancock Mortgage-Backed Securities is an actively managed fund that uses a bottom-up approach to select mortgage-backed bonds. About half of its holdings are in agency mortgage securities, which are very high credit quality. The other half is in non-agencies.
"We think skilled active managers can exploit inefficiencies in a complex area of bonds," said Goryl. "The result is an attractive balance of credit quality and yields that are little bit more than most passive ETFs."
The fund is up 3.33% this year and yields 3.82%. It is on the smallish side with just $26.6 million in assets.
"We do own a lot of corporate bonds for clients," he said. "So this is an excellent complement to that. I'm not sure I would consider this the core of a fixed-income portfolio, but I do think it's a good holding for somebody to have because you end up with a lot of things that probably most retail investors are lacking."
Goryl's message to investors: "I would advise to stick with an allocation, because jumping in and out of the market, or trying to be too tactical can be dangerous and very costly."
