What ETFs Currently Have the Most Value?

03/18/2014 9:34 am EST

Focus: ETFs

Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

As long as it's fear, not fundamentals, that's driving selling, Jim Lowell is almost always going to be buying and he offers some ETFs to consider before you do.

TERRY:  I'm Terry Savage from MoneyShow.com talking with Jim Lowell of the Fidelity Advisor, and he writes the Forbes ETF newsletter.  Let's talk about exchange traded funds.  It's like the hottest fad for the last three or four years.  Don't buy a regular mutual fund, by an exchange traded fund.  I guess you can get in and out during the day. 

JIM:  You can trade them like a stock, that's probably their single best characteristic.  They tend to not be less expensive or more tax efficient or inefficient for that matter.  Within a well run mutual fund, especially a good low cost, no-load fund from T. Rowe Price, Vanguard, Fidelity, so there's a lot of hype.  People were basically thinking that they were not only new but somehow a much better investment vehicle.  I don't believe that's the case at all, even though I write about ETFs frequently.  I started writing about them in 1996, made our first professional investment in them in 1998, so they can play a role and should play a role in your portfolio. 

TERRY:  Right, so there's lots of ETFs out there  - 

JIM:  Yeah. 

TERRY:  - and there's sector funds and there's specific industry groups. 

JIM:  Yeah. 

TERRY:  What do you do, just throw a dart and have one of each, or how do you play that game?  

JIM:  No, I have model portfolios in the newsletter that really I hope do a good job of figuring out how to piece together for different risk tolerances and objectives, good ETFs, but I almost always opt for very narrowly defined, narrowly specified ETFs rather than the broad market averages. 

TERRY:  All right.  Here we are only in 2014.  What ETFs do you think have the most promise given the fact the market was down in January and who knows from here? 

JIM:  I'll give you two that I think would be reasonable for any investor to consider.  One would be the Dow Diamonds, the multi-national battleship balance sheet blue chip stocks.  They trade globally, they're still undervalued by any historical measure although you'd think by now they would be at least relatively fairly valuable.  They aren't, they're undervalued. 

TERRY:  Why?  I mean, the Dow isn't undervalued to the S&P. 

JIM:  A big flood of money continues to push momentum and valuations up in the small and mid cap space here in the US, so you are getting a reasonable level of valuation left over in that really truly mega cap space, and then Vanguard Europe ETF, great way to play Europe.  I prefer active management but if I'm going the EFT route, that would be the recommendation that I would make. 

TERRY:  A lot could blow up in Europe, the Euro for one. 

JIM:  Sure. 

TERRY:  What about that? 

JIM:  Well, if things don't threaten to blow up, then chances are you're not going to be able to find many bargains in the street, so as long as it's fear, not fundamentals, that's driving the selling I'm almost always going to be on the buy side. 

TERRY:  Okay, thank you very much, Jim Lowell.  You can find him at FidelityInvestor.com.  I'm Terry Savage for MoneyShow.com.

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