Are ETF Investors Abandoning Big Tech?
Some investors are making like Beyoncé and standing in the light of HALOs.
So-called heavy asset, low obsolescence stocks are all the rage on Wall Street as investors look to hedge against disruption by artificial intelligence. The Schwab US Dividend Equity ETF (SCHD), for instance, is up 16% so far this year, which is more than the S&P 500 is expected to return during the entire year. If the fund keeps up that pace, it could climb 140% by the end of 2026, according to a report from Barron’s. The relative cost effectiveness of these stocks is causing some advisors to shift gears and run for the HALOs.
“The valuation gap is still pretty wide,” said Rob Thummel, a senior portfolio manager at Tortoise Capital. “In other words, HALO stocks look a lot cheaper than the mega-cap techs. There’s definitely still room for that trade to continue.”
HALO Effect
Some of the biggest HALO players, like Exxon-Mobil and Walmart, have outperformed so far this year, with their respective stocks up 26% and 10% year to date. But beyond investing in the regular asset-rich companies (oil and gas, fast food, brick-and-mortar retailers and the like), advisors can also turn to products investing in AI infrastructure, like data storage devices, network switches and fiber optic cable companies. Although big tech companies are spending money, Thummel said, they’re buying from “enablers.” “A lot of these companies own valuable resources that are really hard to replace, and so they have high free cash flow yields, pay back decent dividends to shareholders, and buy back stock,” he told ETF Upside. “That has spurred the rotation out of the mega-cap tech and into some of these HALO stocks.”
And it’s not just Schwab. ETFs with allocations to HALOs have generally performed well of late:
Not to Burst Your Bubble, But… Thummel doesn’t see the relative retreat from big-name tech stocks as stemming from fears of an AI bubble, as some have speculated. “A lot of these companies and mega-cap techs, their earnings have grown along with their stock prices,” he said. “Their PE ratios aren’t super inflated, but they still are higher than other sectors.”
