Nearing the end of a turbulent year that whipsawed everyone from hedge-fund billionaire John Paulson to leading bond investor Bill Gross, we thought it would be a good time to chat with some top financial advisors to see what they're doing with exchange-traded funds as the new year beckons.
Most recently, emerging markets, U.S. blue-chip stocks and gold are getting the advisors' attention.
"The market's been all over the map. And in the end, nothing much has changed," says Convergent Wealth's David Zier. He ranked No. 3 in Barron's latest Top 100 advisor ranking, just behind his colleague, No. 1 Steve Lockshin.
One of Zier's picks heading into 2012 is emerging markets. In late September, he bought iShares MSCI Emerging Markets fund (ticker: EEM). Through the middle of last week, Zier figures, the emerging-markets ETF had gained more than 9%. "Prices had fallen to the point where we felt downside risk had been substantially minimized," he says.
Michael Yoshikami of YCMNET Advisors, No. 30 on Barron's list, also is bullish on emerging markets. But he's taking a more targeted approach. He's bought stakes in country-specific funds focused on Singapore, South Korea, Indonesia, Malaysia and China. "As emerging markets grow, different countries are showing very different dynamics," notes Yoshikami.
The advisors also concur on U.S. stock funds: Both will enter 2012 overweight in this area, particularly companies with larger market capitalizations. Zier says his typical stock allocation will be dominated by domestic blue chips through funds like SPDR S&P 500 (SPY). "Small caps are still relatively expensive compared to larger-cap funds," he says. Adds Yoshikami: "We've been taking advantage of lower prices to raise our domestic large-cap allocations based on a view that blue-chip companies will continue to rise in favor."
Mark Lookabill, an investment committee member at Carson Wealth Management, says his firm also leans toward U.S. equities. Ron Carson, head of the Omaha, Neb.-based outfit, was ranked No. 8 by Barron's. "We're taking a very surgical approach," says Lookabill. Utilities, technology and consumer staples are 2012 favorites.
With interest rates expected to remain low, Alan Zafran of Luminous Capital is using Vanguard Dividend Appreciation (VIG) to overweight high-quality, dividend-paying domestic blue chips with global reach. It doesn't hold many financials or utilities, typically a mainstay of dividend-seeking funds. "If you go with an ETF that focuses purely on dividend payouts, then you're not necessarily investing in the best companies," says the manager, whose partner, Mark Sear, was No. 17.
Luminous last week was also eyeing re-entering the gold market through the SPDR Gold Trust (GLD). Its investment committee, which includes Zafran, prefers to avoid trying to pick a bottom and would like to see prices stabilize first. "The fundamental case for gold remains–we're in a deflationary world being fought by central banks using inflationary policies. At some point in 2012, we expect to enter GLD again," says Zafran.
Carson Wealth cut its gold positions in half in October, but Lookabill says it's now wading back in, buying the Market Vectors Gold Miners (GDX). "Relative to the price of bullion, mining stocks appear more attractive—we see more upside in miners at this point in the cycle," he says. So that's where the advisor is headed.