With five months to go and the markets still hanging around record highs, ETF experts are naming their top picks to help investors position themselves going into year-end.
John Davi from Astoria Portfolio Advisors appeared on CNBC's "ETF Edge" Monday to offer three top picks centering around gold, emerging markets and earnings growth.
1. VanEck Vectors Gold Miners ETF (GDX)
Gold has regained its luster over the last six weeks after being a loser for years and trading flat for the first half of 2019. And gold-mining stocks, which haven't fared much better, are also finally starting to show signs of life.
"I think the opportunity cost for owning gold is low," he said, recommending a 5-10% allocation. "You've got rates that have been going lower, [and] recession risks have increased."
Billionaire hedge fund titan Ray Dalio, who runs Bridgewater Associates, also backed the precious metal on Monday, citing easy central bank policies, which are devaluing currencies, and rising global growth and geopolitical concerns.
Dave Nadig, who runs ETF.com, noted a recent technical breakout in GDX, which began in late May and has lit a fire under gold stocks ever since.
"Arguably, the flat gold market has led the GDX holdings to consolidate and clean up their businesses," Nadig said. "So, they're more poised to profit from higher gold than in the past."
So far, GDX is up 33% this year, compared with the roughly 20% return from the S&P 500.
2. SPDR S&P Emerging Markets Dividend ETF (EDIV)
Davi is taking a cautious stance on the global economy overall, but likes emerging markets, particularly the high-dividend payers.
"If you're trying to outperform the benchmark, you need to do something different from the benchmark," Davi said. "EDIV has very little overlap with EEM" [and] trades at 10 times earnings, while EEM trades at 13 times earnings."
The index tracks a yield-weighted index of 100 stocks with strong earnings growth and high dividends — screening for three-year positive earnings growth and profitability.
Emerging markets have underperformed U.S. equities so far this year, and while Nadig agrees that emerging markets are one of the "greatest value plays" around right now, he cautions investors to know what they're owning.
"That fund's loaded up on financials, it's loaded up on energy stocks," Nadig said. "You're getting things like Gazprom in it, so some might argue there's a reason some of those stocks are trading at P/Es of 8, 9 and 10 [times earnings]."
So far, EDIV is up roughly 10% in 2019.
3. WisdomTree U.S. Quality Growth Fund (DGRW)
Davi likes the WisdomTree U.S. Quality Growth Fund, a basket of stocks boasting both strong earnings and strong dividend growth.
"If you look at risk-adjusted returns, [DGRW] has outperformed the S&P 500 since inception," he said.
The key difference, he said, between DGRW and iShares Edge MSCI USA Quality Factor ETF (QUAL) is a matter of screening. "QUAL is just pure quality, whereas DGRW takes 50% quality screen and 50% earnings growth screen. So, I think it's a nice blend."
Bottom line: It's all about valuations.
Davi notes that while the S&P 500 trades at a historically lofty 17-18 times earnings and QUAL trades at roughly 19-20 times earnings, DGRW trades at a much more reasonable 16 times earnings.
DRGW has risen 16% year to date, bottoming out around June, just as the broader markets did.