How to use a 'barbell approach' to beat market uncertainty

As the market gears up for a Federal Reserve policy decision and May's Consumer Price Index (CPI) report signals that inflation may be cooling, its trajectory could change.

JPMorgan Chief ETF Strategist Jon Maier joins Wealth! to give insight into the top ETF picks to protect against uncertainty in the market.

"What I would do is have a barbell approach. So have some portion of your portfolio exposed to growth quality names, names that are companies that are less reliant on the capital markets because obviously rates are high, companies that have strong cash flows, that have good earnings and are less susceptible to the business cycle. So quality names, which I think a large cap blend would make sense. Also on the short side, on the fixed income side, we have a fund called JPST (JPST). JPST has run out of our liquidity group and has a yield of over 5%," Maier tells Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Video transcript

Stocks moving higher off the back of a softer than expected inflation report for the month of May as we're taking a look at investors, looking ahead to the fed press conference this afternoon, which has the potential to bring a little bit of cold water to the rally.

Perhaps to discuss how to protect your portfolio against an uncertain backdrop.

John Mayer, who is the JP Morgan Asset Management chief ETF strategist joins us as part of the ETF report brought to you by Invest QQQ.

Great to have you here in the studio with us.

Thanks for having me.

Absolutely.

So let's talk about this.

I mean, we, we categorized it earlier as a double whammy.

You got the CP I to this morning.

So economic data on one part of the, of the day and then once you get into the trading day, you've got the fed decision that's coming forward, followed by the press conference as well.

So traders trying to figure out how through ETF S they can hedge themselves in case of any volatility on both of those instances there.

Right?

Well, yeah, obviously the numbers were super strong, the CP I numbers as you've been talking about all morning.

I sure no need to repeat them have been much stronger than expected.

Now, you know, midday today you'll have uh the, the fed coming out basically, from my opinion, I think they're gonna be a bit more Dovish.

Um And if, if that's the case, then this rally likely will continue.

And if that's the case, then I think positioning for growth makes a lot of sense in this environment.

Because if you have potentially two rate cuts this year, I think September is on the table, um the the market swap market pricing in November um and then you could get a cut in December.

So two cuts would be positive.

And I think that would be a a tail and for, for growth, a way to play that on on the growth is looking for, you know, being that the market has been very concentrated in several names.

I think the market right now will be focused on actively managed ETF S and JP Morgan has many a actively manage ETF S and I think looking at large cap L at this point, um particularly if the fed comes in and there is a little more Dovish, I think is a place to be.

You, you said positioning for growth.

How does that look tactically in action tactically?

Well, what I would do is is have a Barbell approach, so have some portion of your portfolio exposed to growth, quality names names that are uh companies that are less reliant on the capital markets because obviously, rates are high, um companies that have strong cash flows that have good earnings and um are less susceptible, susceptible to the business cycle.

So quality names, um which I think a large cap end would uh make sense.

Also, on the, the short side, on the fixed income side, we have a fund called J PST J PST is run out of our liquidity group and has a yield of over 5%.

And given that the yield curve is inverted, um it's dis inverted slightly but still dis inverted at about 41 basis points or so from 2 to 10 yielding 5%.

Why take any risk?

Why not take that yield?

Because um until the yield curve dis converge and we get um more clarity on on interest rates, I think stay short.

And so with that in mind, I mean, we're looking at ETF S as perhaps uh an ability to remove some volatility from your portfolio by taking on perhaps a whole sector or a quality bass of names.

But then you have to have kind of this rule of thumb.

What is the rule of thumb for how you should be looking at and judging performance of your ETF that you're adding on to your portfolio versus the broader market as well here?

Well, with ETF S, whether it be a market cap weighted ETF or actively managed ETF, you're really buying a basket basket of securities.

Now, a market cap weighted ETF particularly large cap tends to focus on some of the larger names that have done very well.

So it becomes self fulfilling the larger names get a larger exposure in the portfolio.

That's why at this point in time, if we have a breakdown in correlations, which I think we will over time, a greater dispersion, active management, fundamental analysis of the underlying names in a portfolio uh is is a really uh relevant pro approach right now.

What do you think drives that breakdown in in correlation that you were just mentioning a moment ago?

What what's the, what's the catalyst of that?

Well, I think you have this concentration first, you know the first it's been bag seven, maybe it's four names at this point driving A the the concentration of those top names, the index, driving the performance.

Now a lot of the story has been the A I story as the A IA I story broadens out and filters into the broader economy into other sectors.

It's gonna be a bene other sectors are gonna be a beneficiary, health care or utilities in terms of efficiency.

You know, the Capex cycle is really strong.

Um If you can improve efficiencies and improve margins, you're gonna have a broader um your greater dispersion of of performance.

John Mayer, who is the JP Morgan Asset Management chief ETF Strategist John, great to see you.

Great to see you.

Thanks.