The bull market is likely to continue through early 2025, but after two years of double-digit gains and new record highs, investors should expect plenty of turmoil, says top stock fund picker Janet M. Brown. She sees powerful catalysts for economic and corporate-profit growth in the new Trump administration. At the same time, the risk for higher inflation, trade wars and stretched stock valuations means heightened volatility.
Bottom Line Personal asked Brown to identify the most prominent trends likely to affect the stock market this year and which no-load stock funds and exchange-traded funds (ETFs) are best positioned to find opportunities and protect your portfolio…
Here are Brown’s recommendations for each type of investor…
Investors who can handle short-term volatility in performance can use stock funds that focus on narrow areas of the market and have the strongest prospects for gains in the coming year. My favorite aggressive stock funds now…
This actively managed fund, run by high-profile manager Cathie Wood, makes big bets on disruptive, Internet-based technologies such as cloud computing, cryptocurrency, cybersecurity and artificial intelligence. It is for very aggressive investors since the high turnover and high-risk holdings such as Palantir Technologies and Robinhood Markets make the 35-stock fund more than twice as volatile as the S&P 500. Performance: 20.59%.* Note: ARKW currently has about 10% of its assets invested in Bitcoin.
Asset managers are expected to do well this year because a resilient economy and solid labor market boost the trading activity of small and institutional investors. This fund holds stocks of 39 financial-services companies involved in investment banking, wealth-management and credit-rating services such as Blackstone, Charles Schwab and Moody’s. Performance: 13.9%.
This passively managed ETF tracks the stocks of about 300 companies that provide discretionary products and services that people splurge on including automobiles, clothing, restaurants, travel and luxury goods. The fund, which has an expense ratio of just 0.10%, tends to excel when the economy is strong and consumers feel flush. Top holdings range from Amazon.com to online travel agency giant Booking Holdings. Performance: 13.79%.
These diversified stock funds have similar volatility to the broad stock market. They tend to invest in less speculative, high-quality companies and often serve as core, long-term holdings in a portfolio. My favorite modestly aggressive stock funds now…
Veteran manager Sonu Kalra invests in well-capitalized companies with strong free cash flow and the ability to double earnings over a three-to-five-year period such as Nvidia and Apple. Kalra also is not afraid to bet on up-and-coming stocks that he thinks have the potential to be blue chips including Snap and Carvana. Although the fund is 20% more volatile than the S&P 500, investors have been handsomely rewarded for the risks. Its performance has outpaced the S&P 500 by five percentage points a year over the past decade. Performance: 18.1%.
Fidelity Growth Strategies Fund focuses on midcap stocks of companies with market capitalizations between $2 billion and $10 billion that have accelerating earnings but still sell for reasonable valuations. The stock fund leans on Fidelity’s analyst team to find competitively positioned businesses, often in the industrials sector. Top holdings include WW Granger, which distributes maintenance and repair products to keep businesses running…and Axon Enterprises, which manufactures high-tech public-safety items for law enforcement such as Tasers and in-car camera systems. Performance: 11.21%.
Launched in 1959, this is one of Vanguard’s oldest funds. It utilizes a multi-manager approach, splitting its assets between three well-respected subadvisors, each with different styles, to find fast-growing, large companies. Wellington Management looks for businesses with long-term competitive advantages and reasonable valuations. Jennison Associates is willing to pay up for businesses with rising earnings growth…and Baillie Gifford invests in more speculative names including mid- and small-cap stocks. The result is a stock portfolio dominated by blue-chip tech and consumer companies including Microsoft, Netflix and Tesla. The expense ratio of just 0.32 is among the lowest in the industry for an actively managed mutual fund. Performance: 14.62%.
If you worry about the prospects of sharp market drops, asset-allocation funds can smooth out the volatility. They invest in a mix of stocks, bonds, cash and/or alternative investments. The managers have the flexibility to shift their allocations depending on market conditions. My favorite allocation funds now…
Invesco S&P 500 BuyWrite ETF uses a defensive strategy that has worked reliably over the long run. The fund buys shares in the S&P 500 index and simultaneously sells (or “writes”) call options on those shares to generate income for the fund. A call option gives a buyer the right to buy your shares at a set price in the future that is at or above the prevailing price level of the index. Result: Your potential upside gains on the S&P 500 are muted if the market rises significantly…but if the stock market falls, the income the fund earns offers some downside protection. This strategy has been able to produce mid-single digit returns annually with only about two-thirds the risk of the S&P 500. Performance: 6.33%.
Permanent Portfolio Fund mixes a half-dozen asset classes that have very little correlation with one another to provide exceptional stability and consistent returns in all types of economic climates. Its current mix includes 35% in cash and US Treasuries, which outperform in recessions…25% precious metals, which thrive in times of global turmoil…15% in aggressive stocks such as Nvidia and Palantir Technologies, which do well in bull markets….15% in real estate and natural-resources stocks and 10% Swiss francs, both of which act as a hedge during inflationary periods. The fund, which launched in 1982, is about 60% less volatile than the S&P 500. Performance: 7.68%.
*All performance figures are 10-year annualized and from Morningstar, Inc. as of January 2, 2025. For current pricing, go to Morningstar.com. Bottom Line Personal recommendations are meant for five- and 10-year horizons—not for immediate profits.
