Here Are 5 ETF Trades You Can Make in 2024 to Prepare Your Portfolio

The recent change in the Federal Reserve's outlook has ushered in a new investment landscape that holds significant implications for portfolio adjustments heading into 2024. The central bank's updated projections, revealing plans for three rate cuts in 2024, signal a transformative shift in the market environment, according to John Davi, the founder of Astoria Portfolio Advisors.

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Astoria Portfolio Advisors specializes in assisting financial advisors in constructing portfolios utilizing exchange-traded funds (ETFs). In response to the evolving economic conditions, Davi has recently unveiled a list of recommended funds for 2024, underscoring a strategic emphasis on a broad equity rally over the next year.

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Davi articulated the distinction between portfolios suitable for a period of Fed rate hikes and those suitable for rate cuts. He noted that during rate-cutting cycles, where the central bank aims to stimulate the economy, investors may favor more cyclical growth sectors and themes. To leverage this idea, Davi suggested two avenues from his list: Invesco's equal-weighted sector funds for industrials (RSPN) and energy (RSPG). These funds are poised to benefit from an economic environment characterized by broad positivity, not limited to the expansion of a few major players.

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Emphasizing a thematic focus on de-globalization, Davi highlighted that such a trend would bode well for the industrials and materials sectors. Additionally, for investors seeking a core holding rather than betting on specific sectors, Davi spotlighted the Invesco S&P 500 GARP ETF (SPGP). GARP, an acronym for "growth at a reasonable price," aligns with an investment strategy that seeks to balance stocks with upside potential and attractive valuations. Davi clarified that while the GARP strategy may not be strictly classified as pure value, it targets stocks that are more attractively priced, presenting an appealing way to diversify factor exposure.

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Cash and BondsOver the past two years, investors have often parked cash in short-term Treasury bills and money market funds during the Federal Reserve's rate-hiking cycle. These instruments, offering enticing yields and resilient prices during policy tightening, are now necessitating a shift in exposure as the rate cycle reaches its zenith, as per Davi. Proposing a transition for investors, Davi recommended the Invesco BulletShares 2030 Corporate Bond ETF (BSCU) as a means to extend the duration of income portfolios without introducing excessive risk or complexity. He advocated moving away from T-bills and opting for at least benchmark duration, highlighting the potential for improved total returns in seven-year duration paper compared to T-bills.

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The Fed and the DollarThe Federal Reserve's altered strategy not only impacts the domestic economy but also reverberates through foreign economies and currency markets. Advising on foreign equities, Davi recommended a dual-fund approach for investors to position themselves in specific markets. The list includes both the iShares Core MSCI Europe ETF (IEUR) and the WisdomTree Europe Hedged ETF (HEDJ), each offering distinct exposures and, critically, different responses to fluctuations in the strength of the U.S. dollar.

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Acknowledging the complexity of timing moves in the dollar, particularly in the context of the Fed's rate cuts, Davi advocated a balanced approach, allocating resources evenly between the two funds to mitigate the challenges associated with predicting dollar movements.