"I Bought U.S. Stocks Expecting Guaranteed Gains..." The ETF to Watch Amid AI and High Interest Rate Concerns [Weekend Money]

S&P 500 Earnings Growth Remains Strong

AI Investments, Rising Interest Rates Emerge as Key Risks

High Cash Flow ETFs Offer a Path to Risk Mitigation

Recently, the burden of artificial intelligence (AI) investments and rising interest rates have introduced more variables for investors in the U.S. market. Amid these developments, those who feel uneasy about index investing, such as the S&P 500, may want to consider exchange-traded funds (ETFs) that focus on companies with strong cash flow.

Ha Jaeseok, a researcher at NH Investment & Securities, said, "Major stocks in the U.S. market are experiencing downward adjustments to their forecasted cash flow (FCF) due to substantial AI investments. By contrast, ETFs that invest in companies with good historical and expected future cash flow are less sensitive to AI investment cycles, enabling more stable investments compared to the S&P 500."

VFLO ETF, which invests in companies with excellent cash flow, outperforms the S&P 500. NH Investment & Securities Research Division

This commentary reflects the mixed sentiment surrounding AI in the U.S. market. Although expectations indicate the S&P 500's earnings will surge by 32% year-on-year in 2026, suggesting the upward trend remains intact, anticipation for monetizing AI investments—particularly after Meta's announcement of 'Muse' last month—has further fueled positive sentiment.

However, risks are also mounting. The 10-year U.S. Treasury yield has surpassed 5%, making the interest rate one of the greatest risk factors. This is because rising rates translate directly into higher discount rates for equities. Meanwhile, hyperscaler companies have significantly expanded their AI investment expenditures, and as rates climb, their funding costs for these investments also increase.

Ha noted, "The proportion of semiconductor and hyperscaler companies within the S&P 500 has grown significantly. While Nvidia is not under substantial cash flow pressure on its balance sheet, it is effectively absorbing customers' capital expenditure (CAPEX) via commitments and guarantees." He pointed out that index investing, such as in the S&P 500, has become more closely tied to the AI investment cycle, and the related risks have increased accordingly.

As an alternative to mitigate the risks associated with index investing, Ha underscored the importance of the 'cash flow factor.' He highlighted several relevant ETFs listed in the U.S.: 'Pacer US Cash Cows 100 ETF (COWZ),' 'VictoryShares Free Cash Flow ETF (VFLO),' 'Global X U.S. Cash Flow Kings 100 ETF (FLOW),' and 'Invesco Nasdaq Free CA Flw Achiev ETF (QOWZ).' On the Korean market, there is the 'TIGER US Cash Cow 100' ETF, which tracks the same underlying index as FLOW. These products invest in U.S. companies with robust cash flow relative to market capitalization.

Compared to the S&P 500, the portfolios of these ETFs have lower allocations to IT and financials, and higher allocations to healthcare and energy. Among them, COWZ, the largest by net asset size, includes holdings such as Valero Energy (2.30%) and Marathon Petroleum (2.25%). VFLO, which is the next largest, includes Salesforce (3.79%) and Devon Energy (3.54%), among others.

Additionally, Ha also introduced dividend growth ETFs as another alternative to reduce index investing risks. "Maintaining stable cash flow is essential for consistently increasing dividends," he said. "In the Korean market, there are numerous dividend growth covered call ETFs that provide opportunities for both dividend growth investing and pursuit of high yields."

Among U.S. dividend growth ETFs, he mentioned the 'Vanguard Dividend Appreciation ETF (VIG),' 'Schwab US Dividend Equity ETF (SCHD),' 'iShares Core Dividend Growth ETF (DGRO),' 'WisdomTree US Quality Dividend Growth ETF (DGRW),' and 'ProShares S&P 500 Dividend Aristocrats (NOBL).'

For Korean-listed dividend growth covered call ETFs, the options include the 'KODEX US Dividend Covered Call Active,' 'TIGER US Dividend Dow Jones Target Covered Call 2nd,' 'ACE US Dividend Quality+Covered Call Active,' and 'PLUS US Dividend Growth Daily Covered Call,' among others.

This content was produced with the assistance of AI translation services.