ETF Edge

With stocks at all-time highs, here's how to navigate earnings season using ETFs

3 ways to cash in on earnings season

Earnings season is in full swing and right now, discipline is key.

That's at least according to exchange-traded fund experts, who are starting to err on the side of caution with stocks hovering near their all-time highs.

"We've got a 10-year bull market in stocks, so the S&P [500]'s done quite fine. It's really been tough to beat it," Tom Lydon, editor and proprietor of, said Monday on CNBC's "ETF Edge." "But going forward, I think making an index a little bit more disciplined is a great idea, so now is the time to look at those types of disciplines."

Those include ETFs like WisdomTree's U.S. LargeCap Fund, which tracks big, profitable companies that consistently generate earnings. Its top holdings include the stocks of Apple, Microsoft, Berkshire Hathaway and J.P. Morgan Chase.

"Quality wins in the long run," Ric Edelman, co-founder and chairman of Edelman Financial Engines, said in the same "ETF Edge" interview.

Edelman, who was ranked No. 1 independent advisor in the country by Barron's three times, suggested another quality-driven play: the O'Shares FTSE U.S. Quality Dividend ETF.

That fund's largest positions include shares of Cisco Systems, Exxon Mobil, Procter & Gamble and Johnson & Johnson. And, if you ask Edelman, this ETF has a leg up on WisdomTree's fund for a few key reasons.

Its strategy is "not just buying companies with strong earnings, but also those that pay dividends on the attitude that half the profits from the stock market come from dividends, not merely growth and share price," Edelman said. "So, it makes sense in the long run even though it might not outperform at a given moment. O'Shares hasn't done as well as the S&P. Neither has the WisdomTree fund. But so what? 'At the moment' isn't a reason to invest or not invest."

That's why investors looking for a longer term play might find it worth narrowing their investments to funds like these, which find ways to capture outsized gains over time by tracking what their managers see as quality results.

"As we're here at all-time highs, everybody's feeling pretty comfortable with the market," said Lydon, who is also president of Global Trends Investments. "Going forward, if you feel like we might be a little bit long in the tooth with the markets, make sure you're looking for dividend plays, make sure you're looking for earnings plays, because these ETFs can actually do that work for you without just buying the general markets."

Stocks climbed Friday, buoyed by strong earnings from Microsoft. The WisdomTree large-cap ETF rose by less than 1%, while the O'Shares fund stayed mostly flat.