Kurt Altrichter, chief investment officer at Ivory Hill, thinks relying solely on economic signals for investment decisions isn't enough. Finding the best ETFs takes more effort.
That's why his firm also uses trend analysis to guide increasing or decreasing stock exposure. Trend analysis also helps protect from losses during extreme volatility and capitalizes on the best opportunities in the market.
"Many investors are exercising caution due to the market's parabolic trajectory and unrealistic valuations, which could result in sizable downturns," Altrichter said. "However, we may just be entering the euphoria phase of the market cycle, suggesting that stocks could continue rising irrationally before reaching their peak."
Altrichter founded Ivory Hill in 2020. The firm manages approximately $65 million in assets. Ivory Hill specializes in financial planning and investment management tailored to high earners and entrepreneurs.
Election Could Bring Volatility To Best ETFs
Stock prices often head higher in the lead-up to a presidential election, as they have recently, Altrichter says. He cautions that market dynamics can still potentially lead to significant drawdowns.
"As we approach the upcoming election, deciphering market trends becomes more challenging. For investors seeking to enter this market, I advocate for lower volatility investments with a focus on quality and free cash flow," he said.
The markets remain in a risk-on mood for the time being. But sticky inflation and the Federal Reserve's response to it could create uncertainty for the current growth cycle. "We anticipate a period of alternating growth patterns, possibly leading to stagnant or slow economic growth, accompanied by inflation upticks," he said.
Best ETFs Reduce Concentration Risk
One concern that Altrichter hears from his clients is what to do with their portfolios considering that the S&P 500 is so reliant on a few giant companies and sitting at all-time highs. For long-term investors looking to tilt their exposure to the index, the Invesco S&P 500 Low Volatility ETF is an option. It can lower portfolio risk while reducing concentration risk.
The ETF "still has exposure to the broader index, but focuses on the lower beta categories of the index," he said. He notes that SPLV's midcap lean is also a good diversifier. It has just a 52% allocation to megacap and large-cap companies compared to the 82% concentration in those categories within the S&P 500.
The fund's heavier allocation toward traditionally defensive sectors can also provide investors some downside protection, he says. "If the index does have a deep correction, SPLV should go down less than the overall market. On the flip side, if this rally stalls and churns sideways, there is much room for these sectors to play catch-up in a generally rising macro environment," he said.
Even if the AI mania pushes the market higher, this ETF will ride the wave, he says. "SPLV won't outperform tech, but you also won't be left behind," he said.
Using Utilities' Best ETFs Against A Downturn
If growth stalls while inflation remains elevated, it can create a tricky situation for investors. That's why Altrichter likes the Utilities Select Sector SPDR ETF. The ETF is a potential outperformer during a stagflationary environment. He says "overweighting incrementally into the utilities sector not only offers potential for outperformance but also serves as a way to distort volatility during turbulent markets."
Utilities are some of the most durable and defensive companies in the economy. Households continue paying their utility bills even in challenging economic conditions. In slower economic times, allocating toward utilities could backstop portfolio performance.
Utilities, however, are considered interest rate sensitive. They usually carry large debt loads. Altrichter says that investors need to be aware of the inverse relationship between utility stocks and interest rates, but he also believes that recent behavior for the sector could signal higher volatility ahead.
"XLU has been on a mini-rally since February, while long-term yields have been rising. That might be telling you that we should be prepared for higher volatility in the next month or so," he said.
If tech stocks sell off, XLU should outperform. "The sector's current positioning suggests an opportune moment to capture potential upside, especially in a climate of increasing market volatility and shifting interest rate dynamics," he said.
Risk Strategies Tap Volatility
Investors trying to time the market by frequently moving in and out of stocks sometimes fail to avoid losses. But a strategy driven by quantitative signals to drive asset allocations could prove to be quite useful. Altrichter suggests the ATAC U.S. Rotation ETF for this purpose.
The ETF's methodology allocates to stocks during calmer markets and shifts to long-term Treasuries during more turbulent market conditions. The strategy has worked in the past. But not during rising rate environments. But with a potential reversal in interest rates coming, now is an opportune time to consider adding exposure to this ETF, he says.
"Long-term Treasuries may not hedge against stock market movements, but they serve as a hedge for credit events or periods marked by aggressive spikes in (volatility)," he said. "This fund is positioned to outperform in such environments. Its balanced approach within an ETF offers a strategic buffer as we navigate the end of this cycle and into the next cycle."
Kurt Altrichter
- Ivory Hill
- Chief Investment Officer
- With stocks racing higher, now's the time to limit risk using ETFs that control volatility.
