XLV - VGT: Buy This Basket With An Impressive Assortment Of Eggs
2024-06-30 08:58:16 ET
Summary
- The current US economic landscape is unique. Many varying economic forces, making an ideal soft landing a matter of when.
- VGT has a unique portfolio concentrated enough to reap long-term benefits of technological development, but also account for volatilities in the economy through diversification into areas of information technology.
- Strong Quant Ratings amidst other technology-based ETFs, along with current economic and secular shifts that align comfortably with VGT's holdings, are also catalysts supporting my buy rating.
- Risks of pullbacks in information technology equities, a lack of “back-end” hardware companies in VGT and sector shifts can cause VGT and general tech ETFs to be less attractive.
- Ultimately, the degree of diversification in an ETF investment would depend on current economic and secular trends, and how its portfolio accounts for future growth opportunities.
Introduction
From worries last year of potential recession in 2024 due to elevated interest rates to core, the current economic landscape is a unique one. The Federal Reserve's most recent rate decision penciled in one rate cut in 2024, and 5 projected rate cuts in 2025. Such hawkishness came amidst modest progress towards the committee's 2% soft landing inflation target, compelling them to wait for clearer signs of disinflation, albeit positive news on core CPI. All in all, while month over month CPI data (Apr to May) reflected better than expected disinflation progress with a low print in May, factors such as price sticky CPI components under the defensive sector (not sensitive to interest rate effects) having yet to cool, to more frugal consumer spending habits and a tight housing market (causing shelter costs to remain higher) still go against the ideal end state scenario of a soft landing .