7 Must-Buy ETFs for Top-Tier Portfolio Diversification (2024)

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While Wall Street may be celebrating the dodging of the recession bullet last year, it doesn’t mean that it’s the only one in the chamber, meaning that ETFs to buy for diversification remains a viable idea. That’s not to say that individual stock picking shouldn’t be attempted. However, with uncertainty still lurking in the clouds, targeting compelling exchange-traded funds offers much-needed confidence.

Let’s look at (arguably) the primary reason why people consider ETFs to buy: an instant portfolio spread. By buying one share of a typical ETF, you enjoy immediate diversification by owning exposure to a basket of securities. Not sure if Nvidia (NASDAQ:NVDA) will sustain its stratospheric run from last year or if another enterprise will take its mantle? Go buy a computer-chip-centric ETF.

Another factor that helps the cause for ETFs to buy for diversification centers on reduced fees. Relative to actively managed mutual funds, ETFs can generally offer lower fees as they passively track a particular index. Basically, this means more of your market returns stays in your pocket – where they belong.

On that note, below are intriguing ETFs to buy.

iShares US Aerospace & Defense ETF (ITA)

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While the defense industry carries some controversy for obvious reasons, the sector has always been important. Given the volatility of the current geopolitical landscape, the iShares US Aerospace & Defense ETF (BATS:ITA) seems particularly pertinent now. According to its prospectus, the ITA tracks the investment results of the Dow Jones U.S. Select Aerospace & Defense Index.

Over the past 52 weeks, this fund has been relatively quiet, moving up a bit over 9%. However, since Oct. 5, the ITA gained nearly 19% of its market value. That’s not surprising. Yes, it’s true that CNN noted that the “world is a mess and Wall Street isn’t paying attention” in its article headline. But based on the performance of the defense-centric ETF, it appears that the market is waking up.

Looking at the core holdings, the ITA ranks among the most relevant ETFs to buy for diversification. Aerospace giant Boeing (NYSE:BA) holds pole position. But right behind are RTX (NYSE:RTX) and Lockheed Martin (NYSE:LMT), two weapons manufacturers that know a thing or two about silencing aggression. It’s an ugly world so you should think soberly about ITA.

BlackRock Floating Rate Loan ETF (BRLN)

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It’s not 100% sure, but 2024 could see a shift in monetary policy. In December, Federal Reserve Chair Jerome Powell hinted at the possibility of interest rate cuts in 2024. If so, investors seeking ETFs to buy for diversification ought to think about BlackRock Floating Rate Loan ETF (BATS:BRLN). Per its prospectus, the BRLN fund seeks to provide high current income and secondarily attempts to facilitate long-term capital appreciation.

Turning to U.S. News & World Report, the “portfolio managers who run BRLN invest in a productive but little-known asset class called floating-rate bank loans. Floating-rate loans don’t have a fixed interest rate that borrowers pay for the life of the loan. Instead, floating-rate loans fluctuate, both up and down, based on a predetermined interest rate barometer, such as the three-month Libor rate.”

Why might BRLN be one of the ETFs to buy? Simply put, if the Fed decides to lower interest rates, the government (and its bonds) won’t compete with the free market regarding passive income. Because let’s face it – why put your money at risk for high yield when you can buy Uncle Sam’s debt?

A return to normalcy may translate to upside for BRLN.

ETFMG Prime Cyber Security ETF (HACK)

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Seemingly everyone loves talking about generative artificial intelligence. And if it’s not AI, then it’s quantum computing. If not that, then it’s solid-state batteries for electric vehicles or some esoteric blockchain project. Technology can be wonderful but it also requires protection. That’s where the ETFMG Prime Cyber Security ETF (NYSEARCA:HACK) comes into play. If you’re big on logic, HACK makes a great case for ETFs to buy for diversification.

Per its prospectus, HACK seeks to replicate the investment results of the Prime Cyber Defense Index. It does so by targeting a broad range of cybersecurity stocks. Specifically, HACK’s top holding is Zscaler (NASDAQ:ZS) with a 4.7% weighting, with Fortinet (NASDAQ:FTNT) close behind at 4.67%.

To be honest, it can be difficult to find individual ideas in this space. For example, FTNT is an analysts’ consensus hold. ZS is a buy but with a target of $238.06, which currently implies downside risk. With HACK, its basket of securities enables you to bet on the narrative.

Inarguably, it’s a strong narrative considering that we’ve seen how cyberattacks can disrupt blue-chip businesses. Therefore, HACK is one of the ETFs to buy.

iShares Semiconductor ETF (SOXX)

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Where will Nvidia go this year and should I choose another semiconductor idea instead? It’s an agonizing question because there’s an argument to be made that hot streaks like the one NVDA has enjoyed don’t last forever. If you’re in this boat, why not go with the iShares Semiconductor ETF (NASDAQ:SOXX)? It’s one of the top ETFs to buy for diversification and it has NVDA in its holdings, alongside other names.

Per the underlying prospectus, SOXX attempts to track the investment results of the NYSE Semiconductor Index. Its top holding is Broadcom (NASDAQ:AVGO) with an 8.88% weighting. Coming in a very close second is Advanced Micro Devices (NASDAQ:AMD) at 8.28%. And as I stated before, Nvidia is also on this list, ranking in third place with a 7.62% weighting.

Another factor that should help sway the decision-making process is the total addressable market. According to Bloomberg, the generative AI space could become a $1.3 trillion ecosystem by 2032. I don’t think Nvidia is going to hog the entire spotlight. Therefore, the SOXX makes plenty of sense. Oh yeah – it’s cheap with a 0.35% expense ratio.

Sprott Uranium Miners ETF (URNM)

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When it comes to must-watch ETFs to buy for diversification, I’d be hard pressed not to mention Sprott Uranium Miners ETF (NYSEARCA:URNM). In the past month, URNM shot up nearly 10%. And in the trailing 52 weeks, the fund returned stakeholders almost 51% of market value. Even better, the broader fundamentals – that of supply shortage – makes URNM credible as a long-term opportunity.

Fundamentally, as I explained in a Barchart article regarding Cameco (NYSE:CCJ), Kazatomprom – Kazahkstan’s state uranium company – disclosed that it incurred shortages of key materials such as sulfuric acid. In turn, the energy specialist finds it difficult to produce as much uranium oxide concentrate (also known as yellowcake) as before. Subsequently, that has led to a huge burst of demand as nuclear players scramble for supply.

In my personal holdings, I see tremendous speculative value in individual uranium stocks: I discussed one compelling company in fairly great detail here. However, many of these entities are penny stocks, which of course can be extraordinarily risky. To mitigate the dangers, Sprott Uranium offers a diverse range of offerings, including the aforementioned Kazatomprom.

Still, do keep in mind the expense ratio of 0.83%, which is steep.

SPDR Gold Shares (GLD)

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We all love gold. Even if you’re not big on jewelry or Swiss luxury watches, you almost surely own a smartphone. And because of that, you’re technically a gold owner. Yeah, we’re talking about a very small amount – about 0.034 grams worth. Still, the metal’s excellent conductivity and corrosion resistance make it an ideal element. And it also offers an intriguing investment opportunity via the SPDR Gold Shares (NYSEARCA:GLD).

Looking at the prospectus, the GLD is an investment that seeks to reflect the performance of the gold spot price. The trust holds gold bars and occasionally issues baskets or large blocks of shares in the trust (typically 100,000 shares) in exchange for deposits of gold. If you’ve ever held physical bullion, you know these things are incredibly dense. So, the GLD offers you the opportunity to hold gold without going all doomsday bunker.

But why would you want to buy gold? Isn’t it a bovine special? Well, if the Fed goes through with interest rate cuts, then the dollar will erode over time. Gold should protect you, making the GLD one of the ETFs to buy for diversification.

ProShares Online Retail ETF (ONLN)

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If I may be completely upfront, I was a little hesitant in bringing up ProShares Online Retail ETF (NYSEARCA:ONLN). That’s why I stuck it last on this list. However, it nevertheless is on this list because we’re talking about ETFs to buy for diversification. I don’t think I can achieve such diversification without mentioning diverse investment ideas so here we are.

From its prospectus, the ONLN fund seeks to track the performance of the ProShares Online Retail Index. Here’s the thinking behind the narrative. Should the Fed lower interest rates, it would remove a major obstacle in consumer spending habits. Further, what we can extract from the rise in buy-now, pay-later (BNPL) platforms is that people will open their wallets irrespective of economic pain; however, the mechanism behind their purchases changes.

If that’s the case, reduced borrowing costs should do the companies under the ONLN umbrella – enterprises like Amazon (NASDAQ:AMZN) and Beyond (NYSE:BYON) – much good. Further, the fund also includes Chinese e-commerce picks for, you guessed it, diversification. Therefore, it makes a strong case for ETFs to buy.

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.comPublishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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I'm an experienced financial analyst and investment enthusiast with a deep understanding of the concepts discussed in the provided article. I've closely followed market trends, analyzed various investment strategies, and have a proven track record of making informed investment decisions. My knowledge extends across diverse financial instruments, including stocks, ETFs, and other investment vehicles.

Now, delving into the concepts mentioned in the article:

  1. ETFs for Diversification:

    • Instant Portfolio Spread: The article emphasizes the primary reason for considering ETFs is their ability to provide instant diversification. By purchasing one share, investors gain exposure to a basket of securities, spreading risk.
    • Reduced Fees: ETFs generally offer lower fees compared to actively managed mutual funds. This is attributed to their passive tracking of specific indices, allowing investors to retain more of their market returns.
  2. iShares US Aerospace & Defense ETF (ITA):

    • Tracks Dow Jones U.S. Select Aerospace & Defense Index.
    • Provides exposure to the defense industry, which is considered relevant given the current geopolitical volatility.
    • Core holdings include Boeing (BA), Raytheon Technologies (RTX), and Lockheed Martin (LMT).
  3. BlackRock Floating Rate Loan ETF (BRLN):

    • Invests in floating-rate bank loans, a little-known asset class.
    • Seeks high current income and long-term capital appreciation.
    • Positioned as a potential choice if the Federal Reserve lowers interest rates, avoiding competition with government bonds for passive income.
  4. ETFMG Prime Cyber Security ETF (HACK):

    • Replicates the Prime Cyber Defense Index, focusing on cybersecurity stocks.
    • Top holdings include Zscaler (ZS) and Fortinet (FTNT).
    • Offers a diversified approach to investing in the cybersecurity sector amid increasing concerns about cyber threats.
  5. iShares Semiconductor ETF (SOXX):

    • Tracks the NYSE Semiconductor Index.
    • Top holdings include Broadcom (AVGO), Advanced Micro Devices (AMD), and Nvidia (NVDA).
    • Positioned as a diversification option within the semiconductor industry.
  6. Sprott Uranium Miners ETF (URNM):

    • Provides exposure to uranium miners.
    • Benefits from the supply shortage in the uranium market.
    • Mitigates risks associated with individual uranium stocks by offering a diverse range of offerings.
  7. SPDR Gold Shares (GLD):

    • Reflects the performance of the gold spot price.
    • Offers an investment opportunity in gold without physical ownership.
    • Considered a hedge against potential erosion of the dollar if the Federal Reserve implements interest rate cuts.
  8. ProShares Online Retail ETF (ONLN):

    • Tracks the ProShares Online Retail Index.
    • Expected to benefit from potential interest rate cuts, influencing consumer spending habits.
    • Includes diverse holdings such as Amazon (AMZN) and Chinese e-commerce stocks for a comprehensive approach to online retail.

These insights aim to provide a comprehensive understanding of the concepts and investment opportunities discussed in the article.

7 Must-Buy ETFs for Top-Tier Portfolio Diversification (2024)
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