While few market experts might not want to admit it, exchange-traded funds may be the best approach to long-term market success, thus driving the case for ETFs to buy for diversification.
The Financial Times may have said it the best last year. It wrote an article with the headline, “It’s 2023 and fund managers still suck.” A Jefferies note revealed that only 43% of active equity managers outperformed their benchmarks. So, why not just get shares of the benchmarks?
That seems the logical thing to do. And hey, wouldn’t you know? That’s the theme for these ETFs to buy for diversification.
Global X Artificial Intelligence & Technology ETF (AIQ)
If electric vehicles are the future of mobility, then artificial intelligence may be the future of computing. However, knowing which AI play to go for isn’t easy. Yes, you can buy up shares of Nvidia (NASDAQ:NVDA). But at this juncture and this valuation, it’s a difficult call — arguably even so for the ardent bull. Fortunately, investors have the Global X Artificial Intelligence & Technology ETF (NASDAQ:AIQ) on their side.
Rather than guess which AI-related idea will flourish, the AIQ wagers on all the majors. Along with Nvidia, Meta Platforms (NASDAQ:META) and Amazon (NASDAQ:AMZN) constitute the top three holdings. The fund also features healthy exposure to legacy tech juggernaut IBM (NYSE:IBM). If you’re looking for all things digital intelligence, this may be the canvas to go with.
The added benefit of including AIQ in your list of ETFs to buy for diversification is that if one of the overheated enterprises like Nvidia stumbles, the other players can help pick up the slack. This profile limits your upside potential, but it also limits your downside risk.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
When looking at the headlines, it’s difficult not to get a bit jittery about your investments. For one thing, we just passed a significant moment regarding tensions in the Middle East. While cooler heads have prevailed, a miscalculation could quickly spiral circumstances out of control. But that’s not the only global flashpoint that brings us to the SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA:SPYD).
Rather than attempting to find out which enterprises pay – and pay well – you can let the SPYD fund do the work. Under its top holdings, the ETF features a wide range of businesses, from toy manufacturers to automakers to utility giants. I can easily make a bullish case for most companies in the top 10 without getting creative.
Looking at the sector weightings, it must be said that the SPYD leans heavily in three areas: real estate, financial services and utilities. However, the SPYD is truly one of the ETFs to buy for diversification because it adequately includes the enterprises that should be the most insulated during challenging market cycles.
Vanguard Energy ETF (VDE)
I believe the Vanguard Energy ETF (NYSEARCA:VDE) is one of the top ETFs to buy for diversification. The modern world needs energy. None of the tech we celebrate so much amounts to anything without energy. And it’s also true that the world continues to run on oil.
That’s the uncomfortable truth that should catapult VDE higher. Indeed, it’s already up almost 14% since the start of the year. However, I believe the ride is just getting started. That’s because irrespective of whatever happens in the Middle East, Russia’s invasion of Ukraine – and Ukraine’s response in attacking Russian energy infrastructure – should lead to global hydrocarbon supply disruptions.
In my opinion, crude oil prices will inevitably rise. And with the possibility that the Middle East could devolve into serious conflict, every component of the hydrocarbon value chain – upstream, midstream, downstream – may see demand spikes.
That’s going to make VDE very compelling. If you need another reason to consider it, its expense ratio is cheap at 0.1%. Keep this on your radar.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
