If I Could Only Hold 5 Funds Over The Next Decade

seekingalpha06-20

ETFs and CEFs can make the investing process much simpler, even if you give up some of the potential for alpha in the process.I share my macro outlook for the next decade.I share the five funds I ...

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These can give you instant diversification and remove the need to constantly analyze stocks, earnings calls, and valuation models. Additionally, when you have funds that hold dozens or even hundreds of individual stocks, you do not need to hold very many. In fact, you may not need to hold more than five or even fewer funds to achieve decent long-term risk-adjusted results. With that in mind, in this article, I am going to share the funds I would hold if I could only own five of them for the next decade. Macro Outlook Before I get into the specific funds, I will share my personal view on the market today and the trends I see as particularly strong over the next decade. First and foremost, I see the stock market right now as being quite overvalued. Numerous valuation models, such as the Buffett Indicator, the price-to-earnings model, the interest rate model, and the S&P 500 mean reversion model, all indicate that the market is overvalued. On top of that, macroeconomic risks are fairly elevated right now with the yield curve quite inverted, unemployment gradually rising, consumer sentiment weakening, debt levels very elevated, savings rates quite low, and delinquencies across the economy beginning to edge higher. Moreover, it appears that inflation is not going to fall quickly, and interest rates will therefore have to remain a bit higher for longer, even if the Fed starts cutting rates at the end of this year. Additionally, geopolitical risks are soaring with the threat of the wars in Eastern Europe and the Middle East expanding, and East Asia looking like an increasingly ominous powder keg as the Korean Peninsula, the Taiwan Straits, and the ongoing spat between China and the Philippines all present significant risks to the region. As a result, I'm generally not a fan of the S&P 500 (SPY) right now, especially given that it is dominated by mega-cap stocks that have been on an incredible tear lately, indicating that sustained upside over the next decade is increasingly unlikely, as these companies will have to deliver significant growth to justify their high valuations. That being said, I do see some opportunities in the market, particularly in infrastructure. Major trends like decarbonization, digitization of the economy, and the need for new infrastructure development in both developed and developing economies should drive tens of trillions of dollars into the sector in the coming years and decades. On top of that, the ongoing AI boom will likely drive very strong energy demand, as it will take an enormous amount of electricity to power the huge data centers needed to train and run large AI models. While renewable power should have a strong growth runway, hydrocarbons will inevitably be needed, at least for the foreseeable future, to bridge the gap until more renewable power can come online, especially given that major energy exporters like Russia and Iran are increasingly decoupling from Western economies. Another major trend I see playing out over the next decade is that the US dollar will likely weaken due to an increasingly fracturing world order with an ascendant China and BRICS efforts to de-dollarize global trade, massive deficit spending by the US government, and increasing demand for gold by central banks around the world. I do not have a strong opinion about cryptocurrency, and I continue to believe that opportunities like Bitcoin (BTC-USD) and Ethereum (ETH-USD) are highly speculative given that the preference of governments and most global elites is to enforce centralized digital currencies. However, they do present another potential wild card that could further erode the dollar's influence, especially if more countries follow El Salvador's lead and adopt it as a primary or alternative currency. The final major trend I see over the next decade is the likelihood of major geopolitical conflict. Western intelligence consensus suggests that China will likely try to make a move on Taiwan sometime over the next decade, and likely in the first half of that decade. Full-blown wars in the Middle East or the Korean Peninsula are also potential risks, as is the possibility of a war in Europe between Russia and other European states or even NATO. Given these views, I'm inclined to put less money into the main AI power players like NVIDIA (NVDA), Microsoft (MSFT), and Apple (AAPL). While they could have further upside, much of the AI boom has already been priced into them and a conflict involving China and Taiwan would likely hurt them immensely, especially AAPL and NVDA. In contrast, I'm much more likely to invest in infrastructure and energy production businesses as they will also benefit from increased demand due to the AI boom, but many of them have not experienced significant upside yet. Additionally, they are more diversified away from AI, so if AI doesn't fulfill its full potential, I still see them as having numerous avenues for growth. With these macro trends in view, here are the five funds that I would pick if I had to hold them over the next decade: 1. Energy Select Sector SPDR Fund (XLE) For exposure to the infrastructure and energy boom, I would pick the Energy Select Sector SPDR Fund. XLE has a very low expense ratio of 0.09% and offers well-diversified exposure to both blue-chip energy companies like Exxon Mobil (XOM) and Chevron (CVX), as well as leading midstream infrastructure businesses like Williams Companies (WMB) and ONEOK (OKE). Additionally, it holds Marathon Petroleum (MPC) as its fifth-largest holding, which also has a large position in the blue-chip midstream MPLX (MPLX). While I considered adding Alerian MLP ETF (AMLP) or the Global X MLP ETF (MLPA) to this list, they both have considerably higher expense ratios than XLE and XLE is more diversified across the energy value chain. 2. Reaves Utility Income Fund (UTG) I chose the Reaves Utility Income Fund over some competitors, such as the Cohen & Steers Infrastructure Fund (UTF) because it has a lower expense ratio, less leverage, and its largest position is in Constellation Energy (CEG), a major beneficiary of the AI boom with increased demand for new energy. 3. Schwab U.S. Dividend Equity ETF (SCHD) For diversified equity exposure, I picked the Schwab U.S. Dividend Equity ETF. SCHD is extremely well-diversified, holds many sectors that are relatively attractively valued right now, has a solid current dividend yield, a very attractive dividend growth track record, and a very low expense ratio of just 0.06%. Over the long term, it has only slightly underperformed the S&P 500, mainly due to the recent boom in the \"Magnificent 7,\" which SCHD does not hold, so if/when their strong rally peters out, I expect SCHD to outperform the broader market indexes. 4. JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) I also chose the JPMorgan Nasdaq Equity Premium Income ETF because it gives me significant exposure to the \"Magnificent 7,\" which I do not get in SCHD, but it hedges that exposure somewhat with its notional covered call strategy. As a result, if the \"Magnificent 7\" continues to dominate the market, at least I will not be completely left behind, and, in the event that they revert toward the mean a bit, the covered call strategy should enable JEPQ to outperform the Nasdaq (QQQ) and the S&P 500 while also providing a nice income stream, making me less dependent on a continued bull market in big tech. 5. Sprott Physical Gold and Silver Trust (CEF) Last but not least, to round out my portfolio, I want significant exposure to precious metals like gold and silver and my top pick at the moment is the Sprott Physical Gold and Silver Trust. It actually holds real bullion that is accounted for and stored securely, so I know that my holdings are backed by physical metal. Additionally, it currently trades at 5.11% below its net asset value, meaning I can get gold and silver at a hefty discount. The expense ratio is also quite reasonable at 0.51% relative to popular gold and silver ETFs like the iShares Silver Trust ETF (SLV) (0.5% expense ratio) and the SPDR® Gold Shares ETF (GLD) (0.4% expense ratio), and I get a nice, easy diversification between gold and silver within the same fund at a meaningful discount. Investor Takeaway Overall, I believe this portfolio would be well-positioned to benefit from the macro trends I see over the next decade. The AI boom and other major trends like decarbonization, digitalization, and development should significantly benefit the energy and infrastructure investments covered by XLE and UTG. Meanwhile, the SCHD and JEPQ holdings should provide a diversified exposure to the broader stock market along with a very attractive income yield and solid aggregate dividend growth at a fairly low expense ratio. The CEF position, which would likely make up a quarter of the portfolio in this scenario, should provide a nice hedge against a weakening dollar and potential geopolitical turmoil over this decade.  While the choices you pick for funds depend largely on what stage of life you're in, your financial goals, and your outlook for the next decade, this allocation would make a lot of sense for me as it is diversified while still putting significant weight on what I think will be the leading macro trends over the next decade. Additionally, it is a fairly cost-conscious approach to investing because my expense ratios are reasonable across these funds while also providing a nice income yield along the way.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.1","shortVersion":"4.28.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2444921105"}