1 ETF to Buy Before the End of the Year and 1 to Sell
The Fed is expected to keep hiking rates till it achieves the target inflation rate of 2%. However, the pace of such hikes is scheduled to drop eventually. Fed Chair Jerome Powell recently stated that the central bank could start moderating the pace of rate increases as soon as the December meeting.
He added, "We don't want to overtighten, so that's why we are slowing down, and we are going to find our way to where the right level is." Benchmark indices gained substantially over Powell's assurance.
The S&P 500 gained 3%, and the Dow Jones Industrial Average gained 2.6% yesterday. Provided this momentum persists, markets could witness a sustained rally in December.
Moreover, the Santa Claus rally is further expected to boost the broader markets. According to the Stock Trader's Almanac, the average Santa rally has boosted the S&P 500 by 1.3% since 1969.
Given the backdrop, investors could consider buying quality ETF Invesco Senior Loan ETF (BKLN) before the end of the year. However, ARK Innovation ETF (ARKK) might be best avoided now.
ETF to Buy:
Invesco Senior Loan ETF (BKLN)
BKLN invests in leveraged loans in the high-yield bond space. It invests entirely in U.S. leveraged loans, giving investors a pure play on the domestic economy.
With $4.04 billion in assets under management (AUM), BKLN's top holdings include Short Term Investments Trust Government & Agency Portfolio Institutional, with a 17.97% weighting in the fund, followed by CORPORATE BOND at 3.20%, and Mozart Borrower Lp Term Loan B 15-Sep-2028 at 1.54%.
It currently has 130 holdings in total. Over the past month, the ETF's net inflows were $366.67 million.
BKLN pays a $0.86 annual dividend, which yields 4.17% at the prevailing share price. Its four-year average dividend yield stands at 4.03%. Its dividends have increased at a marginal CAGR over the past five years. BKLN has gained marginally over the past month.
It is no surprise that BKLN has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system.
In addition, it has an A grade for Trade, Buy & Hold, and Peer. BKLN is ranked #3 out of 58 ETFs in the B-rated High Yield Bond ETFs group. Click here to see all the BKLN ratings.
ETF to Avoid:
ARK Innovation ETF (ARKK)
ARKK is the flagship actively-managed fund from the team at ARK Invest, Cathie Wood’s advisory firm. It primarily profits from artificial intelligence, DNA technologies, energy innovation, automation, financial technology, and cloud computing industries.
With $7.15 billion in AUM, ARKK's top holdings include Zoom Video Communications, Inc. Class A (ZM) with an 8.84% weighting, followed by Tesla, Inc. (TSLA) at 8.05%, and Roku, Inc. Class A (ROKU) at 7.33%. It has 32 holdings in total.
Over the past week, ARKK's net outflows were $38.93 million. Its 0.75% expense ratio is higher than the 0.50% category average. Over the past month, ARKK has lost 3.6%.
ARKK has an overall F rating, equating to a Strong Sell in our POWR Ratings system. It has an F grade for Trade and Buy & Hold and a D for Peer. It is ranked #80 out of 118 ETFs in the D-rated Technology Equities ETFs group. Click here for all the ARKK ratings.
BKLN shares were unchanged in premarket trading Thursday. Year-to-date, BKLN has declined -2.11%, versus a -13.17% rise in the benchmark S&P 500 index during the same period.