New investors who failed to achieve an appropriate level of diversification may have been dealt a heavy hit over the past week. Undoubtedly, it’s not hard to imagine many beginning market participants are heavy in the big tech names. After all, if you don’t own them, you’ll probably lag the market.
You cannot just rely on a small basket of names for your portfolio. While the big-tech plays may be a big deal, it takes more than seven companies to make a market. Regarding the S&P 500, starting investors mustn’t forget about the 473 other companies, many of which are worth stashing in a long-term-focused portfolio.
The big tech breather is underway. What to do?
While the names outside of the so-called Magnificent Seven may not be growing earnings at a massive rate on the back of trending tech like large language models (LLMs), custom AI silicon, and automation robotics, they may be the plays that can keep the bull market going as the Magnificent Seven (and other overperforming names in tech) look to take the rest of the year off.
After hot runs, mega-cap tech certainly deserves some time off to rest and recharge!
Whether big tech goes sideways for a while or enters a bear market, I think investors should be prepared for every scenario.
At the end of the day, you need to give the workhorses time to recoup. And as the Magnificent Seven go from leaders to laggards in the second half, perhaps it’s time to diversify if you find your portfolio has too much exposure to the top of the U.S. tech markets.
Remember, just because the S&P 500 and Nasdaq 100 indices are heavy on the top six or seven names does not mean your portfolio needs to be. I believe having more than 15% of your holdings in just two stocks doesn’t make much sense for a new investor.
So, if you’re ready to diversify your portfolio further in the face of a worsening market sell-off, the following ETF (exchange-traded fund) seems worth owning for the rest of the year and perhaps a while longer. With lower betas (indicating less market risk), perhaps they can help your portfolio be more resilient come the next bear market moment.
BMO Low Volatility Canadian Equity ETF
BMO Low Volatility Canadian Equity ETF (TSX: ZLB) is a terrific ETF to buy after an explosive market rally shows some dents in the armour. Today, the Nasdaq 100 is in a week-long free-fall. And it may not be so quick to end, either. With that, perhaps it’s time to pursue a proven volatility fighter that can help improve your portfolio’s ability to post handsome returns relative to the risks.
With the ZLB, you’re gaining exposure to some great low-beta stocks, many of which can’t be bothered by volatility going on in specific sectors. With a good mix of Canadian grocers, utilities, financials, and other industries, the ZLB is nicely diversified, with less emphasis on technology stocks. Notably, the ZLB is grocery-heavy these days.
With a robust 2.58% distribution yield and a 0.65 beta, you’re getting paid a good amount to stay aboard a relatively smooth ride compared to the TSX Index and especially the S&P 500 and Nasdaq 100. The management expense ratio of 0.39% seems fair, but honestly, I wish it were just a tad lower
