2027 High Interest Rates, AI Risks... "ETFs: Invest in Companies That Generate Steady Cash" [Jumal Money]

Supply-Driven Inflation and High-Interest-Rate Environment
Big Tech's Funding Burden Mounts
"Cash-Flow-Focused Approach Early in the Year"

The strain on cash flows from high interest rates and increased investment in artificial intelligence (AI) is expected to continue through early next year, according to forecasts. In response, industry experts advised exchange-traded fund (ETF) investors to focus on companies' cash flows through the start of the year.

Park Seungjin, a researcher at Hana Securities, made the remarks while discussing global ETF investment strategies for 2027. Regarding the macroeconomic environment, he said supply-driven inflation and high interest rates would weaken real purchasing power and the quality of employment. "Price pressures stemming from supply-side factors, such as rising oil prices due to war and tariffs, will prolong inflation and drive interest rates higher," he said. "As AI is adopted and companies pursue efficiency, demand for workers is expected to slow, particularly in high-wage industries, putting pressure on wage growth across the economy."

He expects the funding pressures facing big tech companies, which have weighed on AI and technology stocks, to persist for some time. The analysis is that big tech companies will continue to ramp up investment in AI infrastructure, while high interest rates and a lag before investments generate returns will increase pressure on cash flows and capital raising. "Funding conditions will deteriorate first for companies with lower credit ratings and greater reliance on external financing, increasing earnings and share-price volatility across the AI value chain," Park said. "As AI investment has become a key driver of U.S. economic growth, any slowdown in investment or deterioration in funding conditions will also weigh on the broader economy."

He described next year's ETF investment strategy as "focusing on cash flows, followed by a broadening recovery in momentum." Cash-generating ability is expected to be a key theme early in the year. "Through early 2027, the market will continue to scrutinize AI companies' funding conditions and profitability, favoring companies with strong cash-generating ability and fundamentals," Park said. "We are focusing on big tech companies and hyperscalers that generate stable cash from their existing businesses and whose cash-flow pressures ease as they moderate the pace of investment."

For "cash cow" ETFs backed by stable cash flows and financial soundness, he recommended the Pacer US Cash Cows 100 ETF (COWZ), the Pacer US Small Cap Cash Cows ETF (CALF), and the TIGER US Cash Cow 100. He also cited the iShares MSCI USA Quality Factor ETF (QUAL) and the Invesco S&P 500 Quality ETF (SPHQ) as "quality" ETFs holding companies with solid fundamentals and financial stability. For exposure to big tech and similar companies after cash-flow pressures ease, he pointed to the Roundhill Magnificent Seven ETF (MAGS) and the Vanguard Morningstar Mega Cap Growth ETF (MGK).

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