The persistent market volatility, intensified by the recent high-profile bank failures and rising recession risks, is unlikely to abate anytime soon. Investors looking to invest in ETFs could consider buying Vanguard S&P 500 ETF (VOO) in 2023.
However, considering the lingering macroeconomic headwinds, I think it is best to steer clear of fundamentally weak ARK Innovation ETF (ARKK) now.
The Federal Reserve launched its first of eight interest rate increases on March 16, 2022, as it committed to bring inflation down. Inflation has decreased from an annual rate of 8.5% to 6%, but remains well above the 2% target.
According to Jeffrey Gundlach, CEO of DoubleLine Capital, a recession might occur within the next four months, as recent bank failures in the United States have exacerbated the tightening of financial conditions caused by higher borrowing rates.
Torsten Slok, the chief economist at private equity firm Apollo Global Management, said, “A financial accident has happened, and we are going from no landing to a hard landing.”
ETF to Buy:
Vanguard S&P 500 ETF (VOO)
VOO is an ETF launched and managed by The Vanguard Group, Inc. It offers exposure to growth and value stocks of mega and large-cap companies in the U.S. equity market. It tracks the S&P 500 Index using the full replication technique. The fund has a NAV of 357.52.
With $271.30 billion in AUM, VOO’s top holdings are Apple Inc. (AAPL), which has a 6.62% weighting in the fund. It is followed by Microsoft Corporation (MSFT) at 5.58% and Amazon.com, Inc. (AMZN) at 2.51%. The fund has a total of 510 holdings.
Over the past three months, the ETF’s net inflows were $3.18 billion, and over the past year, $20.59 billion. In addition, its 0.03% expense ratio compares with the 0.37% category average.
VOO pays a $5.95 dividend annually, yielding 1.63% at the current price. Its four-year average dividend yield stood at 1.65%. Its dividends have increased at a 2.2% CAGR over the past three years and 6.4% over the past five years. VOO gained 8% over the past nine months to close the last trading session at $363.86. It has a five-year beta of 1.00.
VOO has an overall rating of B, which translates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VOO has a B grade for Buy & Hold. It is ranked #39 out of 274 ETFs in the B-rated Large Cap Blend ETFs category. Click here to see ratings for Peer and Trade for VOO.
ETF to Avoid:
ARK Innovation ETF (ARKK)
Launched and managed by ARK Investment Management LLC., ARKK seeks to generate long-term capital appreciation by investing in companies that exhibit disruptive innovation. The businesses within the ETF cover areas such as automation, AI, robotics, and fintech innovation.
The fund has $7.36 billion in AUM. Its top holdings include Tesla Inc (TSLA) with a 10.17% weighting, followed by Zoom Video Communications, Inc (ZM) with an 8.24% weighting, and Roku, Inc. (ROKU) with a 7.75% weighting. The fund has a total of 30 holdings.
Its fund outflows came in at $306.83 million over the past three months. Its 0.75% expense ratio is higher than the 0.50% category average. It has a NAV of $38.04 and a beta of 1.68.
Over the past year, ARKK has lost 34.6% to close the last trading session at $39.24.
ARKK has an overall D rating, which equates to Sell in our proprietary POWR Ratings system.
It also has an F grade for Trade, Buy & Hold, and a D for Peer. It is ranked #83 out of 118 funds within the B-rated Technology Equities ETFs group. To access all of ARKK’s POWR Ratings, click here.
What To Do Next?
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VOO shares were trading at $359.88 per share on Friday afternoon, down $3.98 (-1.09%). Year-to-date, VOO has gained 2.43%, versus a 2.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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