Astoria Portfolio Advisors says investors should look beyond the most popular large-cap funds next year, but that doesn’t mean they have to be too defensive. John Davi, Astoria’s chief executive and chief investment officer, told CNBC that the massive inflow of cash this year into index funds that track the S&P 500 suggests investors should actually look elsewhere in the stock market for better exposure. More benefits. “It’s hard for me to be overly optimistic,” David said. “We’re saying we’re dialing down our bullish sentiment. We still have some pretty constructive themes.” Astoria helps clients build ETF portfolios and provides advisory services for some of its own funds. The firm also released its list of top ETFs for the coming year, and this year’s list shows how to find winners outside of Big Tech stocks that have fueled the bull market over the past two years. The two funds recommended by Customized Index Astoria are ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM) and WisdomTree US Smallcap Quality Dividend Growth Fund (DGRS). Although they lag behind the S&P 500, they both track custom indexes and are poised to perform strongly in 2024. Part of the reason for the shift to small-cap stocks is that large-cap indexes and some of the largest technology stocks look expensive, making the value of some companies outside the category more attractive. “There are actually many companies that are growing faster than Mag 7,” Davi said. The impact of Donald Trump’s election is also evident on the list. Astoria, which includes the Invesco KBW Bank ETF (KBWB) and the AltShares Merger Arbitrage ETF (ARB), could benefit from a looser regulatory approach to the financial sector and less oversight of mergers and acquisitions. “If the Trump administration fundamentally changes regulation, the banking industry should prosper and merger arbitrage should prosper,” David said. The Invesco KBW fund appears to have started to rebound, in part due to the election results, rising about 14% in November. KBWB 1M Mountain Bank stock outperformed the market in November. However, the AltShares fund, a small-cap ETF with less than $100 million in assets, changed little this month. The fund effectively bets that announced mergers will go through to collect the “arbitrage” difference between the offer price and the target’s current price, and could become increasingly popular if a change in government triggers a flurry of deals. The fund’s website says it aims to provide low volatility and low correlation to stocks and bonds, so it may not be a relatively big winner if the broader market continues to rise. Cryptocurrency catch-up One of the biggest stories among ETFs in 2024 is cryptocurrency funds, with Astoria adding the Bitwise Ethereum ETF (ETHW) to its list for next year. The Bitwise fund is the fourth-largest spot Ethereum ETF, behind only two products from Grayscale and the iShares Ethereum Trust ETF (ETHA). Ethereum funds haven’t taken as big a hit as Bitcoin funds, but may catch up on the rebound. “Ethereum is up 36% from its all-time high, so I think there’s more upside for Ethereum compared to Bitcoin,” Davi said on Tuesday, ahead of the cryptocurrency’s pre-Thanksgiving surge. ETH.CM = 5D Hill Ethereum surged higher on Wednesday. However, Davi did say that he would prefer to own an ETF with more diversified cryptocurrency exposures. Investors may soon be getting some similar options, as asset managers are gearing up to launch a variety of new cryptocurrency funds if the Trump administration proves to be more friendly to the industry, as expected. A list of Astoria’s top ETFs from last year is available here.
