ETF Stream’s portfolio of ETFs to outperform in 2025

As allocators position for the year ahead, ETF Stream’s editorial team has put together a portfolio of ETFs primed for outperformance in 2025.

Bạn đang xem: ETF Stream’s portfolio of ETFs to outperform in 2025

The portfolio is constrained to a 60/40 allocation and attempts to beat a 60/40 benchmark – 60% in an MSCI ACWI ETF, 40% in a Bloomberg Global Aggregate ETF – through canny fund selection and macro foresight alone. We do not rebalance through the year.

Our task for 2025 is made all the more difficult by increasingly stretched equity valuations, a potentially inflammatory political backdrop and unpredictable monetary policymaking.

But after a year of outperformance in 2024, we are in danger of becoming one of the very few active managers able to consistently beat a benchmark.

Overall, our portfolio reflects that the Federal Reserve may prove reluctant to cut rates in the face of a slowing economy – a risk currently underpriced by financial markets. We therefore underweight the ‘magnificent seven’ and overweight very long-dated US Treasuries. We find value in China and Japan.

Noting this does not constitute financial advice, here are ETF Stream’s 16 picks for 2024.

Equities

Our co-CIOs have decided to adopt benchmark weight for US equities this year – a reflection of compromise, not consensus. We found common ground on the shape of our US equity book, however, and have chosen to bias away from recent winners.

Japan and China are overweighted in this year’s ETF Stream portfolio and we are bullish on defence stocks and gold miners. We take small positions in single country emerging markets, while overlooking the UK and mainland Europe altogether.

Invesco S&P 500 UCITS ETF (SPXS) – 22%

Given the primacy of US equities within asset allocation discussions in the last two years, our largest position is awarded to a broad benchmark tracking ETF.

We opted for synthetic replication for our S&P 500 exposure this year based on the favourable tax treatment afforded to US dividends in total return swap calculations.

Invesco has been among the chief advocates for structure and has been rewarded with strong inflows. Synthetic ETFs took in around 30% of all new S&P 500 assets in 2024, about half of which half has gone into SPXS, according to the firm.

Xtrackers S&P 500 Equal Weight UCITS ETF (XDEW) – 14%

The balance of our S&P 500 exposure reflects our fears around concentration risk. The price action of US mega cap equities after the Fed’s hawkish December cut tells us that sentiment in these names is fragile.

It seems we are not the only ones nervous about excessive concentration. XDEW pulled in more assets than any other US large cap ETF in Q3 2024, according to data from Morningstar.

LGIM Russell 2000 US Small Cap Quality UCITS ETF (RTWO) – 6%

The election of Donald Trump has set the stage for a spell of small cap outperformance, with the profit advantage enjoyed by large caps likely to narrow in 2025. Against this backdrop, some degree of re-rating should be expected next year. The moderate position size is a concession that valuation tends to be a weak predictor of near-term performance.

By selecting RTWO, specifically, we express a preference for the quality end of the small cap spectrum given our view that slowdown risk in the US is underpriced.

Janus Henderson Tabula Japan High Conviction Equity UCITS ETF (JCPN) – 6%

We adopt a slight overweight for Japan in 2025 as corporates clean up their act after decades of poor governance and capital allocation. A concentrated active ETF like JCPN enables us to identify the winners.

Xem thêm : Bitcoin Price Predictions: Could BTC Hit $1.5 Million by 2035? (10/01/2025)

The ETF is currency unhedged, too, which we like given the yen’s starting point against the dollar. The measured nature of our overweight reflects that Japanese equities could stutter if the currency rallies aggressively.

Invesco S&P China A MidCap 500 Swap UCITS ETF (C500) – 5%

A more meaningful overweight for 2025 is China. While US tariffs may hurt its economy and structural headwinds remain in place, the government has tested the water with fiscal policy announcements and found that nothing short of a bazooka will do. Prepare for more stimulus in 2025.

C500 provides exposure to the sectors primed to benefit – companies less exposed to tariffs but very geared into domestic stimulus. Synthetic exposure provides an efficient route for access, with the lack of lending market for Sino onshore equities affording C500 a positive impact from its negative swap fee.

Global X Defence Tech UCITS ETF (ARMR) – 2%

The geopolitical landscape has structurally shifted to one of persistent tension, with conflicts continuing in Eastern Europe and the Middle East, while other flashpoints including the China-Taiwan question linger.

This context is prompting governments around the world to commit increasing sums to defence spending. While much of this has been priced in, the prospect of continued conflict means 2025 should be another good year for defence stocks.

ARMR is our weapon of choice because it is low on technology companies relative to peers, a sector about which we are wary. It is long on pure-play defence stocks – the principal beneficiaries of the spending.

VanEck Gold Miners UCITS ETF (GDX) – 2%

A phrase often used is “gold miners are a leveraged play on the price of gold”. This was not the case in 2024. The precious metal was up 28% over the year while the miners lagged, with the NYSE Arca Gold Miners index rising 10.1%.

Gold miner cash flows trail the metal price by roughly 12 months. Given the muted share price performance of miners in 2024, those cash flows are yet to be priced in. Especially if more fashionable segments of the equity market begin to stumble in 2025, gold miners will not go unnoticed. We opt for GDX to access broad exposure to the sector.

Xtrackers MSCI India Swap UCITS ETF (XCS5) – 1%

While this represents a small underweight versus our benchmark, we like India for momentum reasons and were reluctant to overlook it altogether. The nation is in a demographic sweet spot and digitalisation is driving rapid productivity gains.

That said, valuations are rich and Trump’s tariffs could prove painful. However, the market is supported by strong earnings growth, an active domestic investor base and XCS5 offers comfortably the lowest-fee exposure.

Xtrackers MSCI Brazil UCITS ETF (XMBR) – 1%

If we like India for momentum reasons, we like Brazil as a contrarian play. Its stock market fell almost 30% in 2024 as its fiscal problems deepened, President Luiz Inácio Lula da Silva fell ill and risks of stagflation grew. Despite that, unemployment is low and core inflation remains under control.

As its neighbour Argentina showed in 2024, the real money is made when a situation goes from bad to ok, rather than ok to good. Sadly, there were no Argentina UCITS ETFs when ETF Stream constructed its 2024 portfolio and nor are there now, even though we remain bullish on the country.

VanEck Crypto & Blockchain Innovators UCITS ETF (DAPP) – 1%

The election of Trump has been a catalyst for further price recovery in blockchain equities and crypto assets alike, with bitcoin surging 48% since the election result.

Crypto-related equities tend to give high octane exposure, so we expect DAPP to pack a lot of punch in 2025 – for good or for ill. The ETF’s concentrated basket will provide high beta exposure to key players within the sector, which could provide uncorrelated returns based on the crypto news cycle.

Fixed income

Predicting the path of yields has become increasingly fraught for investors. 2024 was supposed to be a year in which interest rates fell, but from the 2-year tenor outwards every US benchmark yield increased over the year.

Although asset allocators may not have enjoyed the capital appreciation they were expecting in 2024, benchmark yields are now at their highest level in over a decade. There is an alternative.

Xem thêm : Meet the Power Players of FOMC 2025: Their Next Moves Could Make or Break Your Portfolio

ETF Stream’s 2025 fixed income book adopts a barbell approach. We look to capture the yields on offer at the short-end of the curve and bet – again – that we will be rewarded with capital gains at the long-end. A handful of idiosyncratic bets are thrown into the mix.

iShares Core € Corp Bond UCITS ETF (IEAC) – 10%

Our largest fixed income allocation is to European investment grade credit. We recognise that credit spreads are expensive across the board, but think European investment grade offers the best value.

Given our view that left-tail risk in developed market economies is underpriced, we choose to avoid high yield altogether. With investors particularly sanguine about the US economy, its credit market offers worse value. IEAC provides an attractive combination of income with scope for further spread narrowing.

iShares $ Treasury Bond 20+yr UCITS ETF (DTLA) – 8%

We run again with Europe’s ‘widowmaker’ ETF, DTLA, which offers exposure to the very long-end of the US yield curve. This $2.2bn fund was our biggest detractor in 2024, but we are not afraid to revisit old adversaries, so long as the setup is sufficiently attractive.

With the risk of a US slowdown underpriced and Fed Chair Jerome Powell preoccupied with inflation, 2025 could be a year where the central bank is too slow to cut rates in the face of a slowing economy – a perfect environment for long duration government bonds.

iShares EUR Cash UCITS ETF EUR (YCSH) – 8%

At the opposite end of the duration spectrum, we are allocating 8% to YCSH – an actively managed ETF seeking to provide exposure to European money market rates. This forms part of our barbell approach, whereby 2025’s best fixed income returns will be found at the short and long ends of the yield curve.

Rather than opt for an overnight rate product, however, we have decided to go active for our short-end exposure, because doing so leaves room for duration to be extended somewhat – something that could prove important as bank rates continue to come down in 2025. YCSH has gathered $220m in assets since its November launch.

Fair Oaks AAA CLO Fund UCITS ETF (FAAA) – 5%

One of the big stories of 2024 was the arrival of CLO ETFs to Europe. FAAA was the first to market, but products from Janus Henderson and Invesco are on the way.

AAA CLOs are loss remote – something we value highly given our slowdown view – and offer higher yields than both government bonds and corporate credit. FAAA provides access to this return stream for a total expense ratio (TER) of just 0.35%.

Amundi UK Government Bond 0-5y UCITS ETF (GIL5) – 5%

Another component of our barbell approach, GIL5 offers exposure to UK government bonds with maturities between zero and five years, with a current duration of 2.1 years. Wage inflation in the UK is proving sticky, making it difficult for the Bank of England to cut interest rates – as much as some members of the Monetary Policy Committee would like to.

At present, GIL5 boasts an attractive yield of 4.4% and we expect short-dated UK yields to remain compelling over the course of 2025.

iShares France Govt Bond UCITS ETF (IFRB) – 4%

The allocation to IFRB can be characterised as an idiosyncratic bet. On the back of political turmoil, the French 10-year yield is trading at almost a 1% premium to German bunds – the highest spread in over a decade. Even Greece is at a lower level.

While we expect the situation in France to get worse before it gets better, we are confident that by the end of 2025 the political situation will have calmed and spreads will be at more normal levels. IFRB offers exposure across the yield curve with a current duration of 7.4 years.

Conclusion

If we were to summarise the 2025 ETF Stream portfolio in two words, those words would be ‘mildly’ and ‘defensive’. We adopt benchmark weight in US equities, but we tilt away from the mega cap growth names that have sparkled in recent years. For 2025, we are bullish on Japan, China, defence stocks and gold miners. We are bearish, alas, on UK and European equities.

We find value in European and UK fixed income, however, using sovereign bond ETFs from each to construct the short-end part of our barbell approach, as well as a Europe investment grade fund for credit exposure.

The fortunes of our fixed income book may largely be determined by our very long-dated US government bond allocation, however. If the economy weakens and Powell is slow to react, long-dated Treasuries will be one of 2025’s top performers.