6 ETF ideas for growth, above-market income and lower volatility

Please note this interview was filmed on 13 March 2025.

The February-March 2025 equity market correction has left investors facing two key questions:

1. How do I protect my portfolio?
2. How do I capitalise on growth assets trading at a discount?

With strong returns over the past few years and elevated valuations, many are reassessing their portfolios. Growth investors seek discounted growth stocks, balanced investors look to blend growth and income, while risk-averse investors prioritise protection.

In this episode of The Pitch, Billy Leung, Senior Investment Strategist at Global X, discusses portfolio positioning and ETF strategies that can help investors achieve these goals.

This is the final of three interviews with Leung, where he shares ETF ideas for growth, income, and defensive investors across the episodes. See episode one, where he discusses winners from US exceptionalism here, and episode two about the next AI winners here.

We’ve had strong equity market returns over the last couple of years and are in the midst of equity market weakness. Should investors be actively de-risking their portfolios or is there still room to chase growth?

It's a tough question, but I would say we definitely need to reassess our positions. 

However, we’re still seeing a lot of opportunities in the equity space. I wouldn’t suggest a full de-risking process, but rather a gradual management of risks. 

For example, despite all the valuation concerns and economic issues, we’re still seeing decent growth in the US. Valuation-wise, what you get in terms of earnings growth is still very solid. 

More importantly, especially this year, we’re seeing a lot of deregulation policies in the US that could improve dividends. This is likely to provide a lot of supporting growth in the US market.

In terms of de-risking, I’d suggest implementing different products to manage risk, whether it’s income-generating, risk management strategies, or even commodities. But there’s no real urgency to de-risk and go the other way.

Let’s focus on income. Australian banks have been a favourite for income investors. However, with rising prices, yields are coming down. Is there a better way for Australian investors to generate income from the market?

Yes, you're right about the banks. Last year, we saw huge increases, especially in the Australian market, where the total market grew by $126 billion, with $70 billion coming from CBA alone. In terms of income generation, the banks in Australia are trading at about 1.9 times book value, which is higher than the global average of 1.2 times. There’s a good chance the banks could revert to more reasonable valuations.

Looking at other areas in the Australian market, there are opportunities outside of banks, such as sectors like technology, consumer, and healthcare. These adjacent sectors could offer some growth potential. 

But as for income, there’s a very simple way to generate income in the Global X Australian Bank Credit ETF (ASX: BANK), which comprises Australian banks' debt, provides about 6% annual income paid monthly. It’s a great way to still be exposed to the Australian economy while generating reliable income.

What’s the case for investing in banks via debt rather than equity? Is there more stability involved?

That’s a great question. Australian banks are among the strongest globally in terms of asset quality, thanks to solid regulatory oversight. Because of that, their debt is also very strong. 

Investing in bank debt provides that stability - limiting your exposure to equity fluctuations. You still get the income generation, but without as much risk as you would have with equities.

Covered call strategies are booming in markets like Canada, and are seeing a slow uptick in Australia. Can you explain how they generate higher yield than the underlying asset class and their benefits?

Yes, you're right - covered calls are becoming very popular, not just in Canada, but across Asia as well. The strategy itself is quite simple, even though it sounds complicated because it involves options and derivatives. 

Essentially, you buy the underlying stock - whether it's a banking stock or mining stock - and then sell or write a call option on that stock. By doing this, you capture the option premium. 

The benefit of this is that you don’t have huge exposure to the stock's ups and downs, but you still get the income from the option premium. 

It's perfect for markets which are relatively sideways or volatile, which means that you don't really want to benefit or you don't see the stocks falling or rising a lot. But at the same time, it gives you that option premium or that income generation on a regular basis. 

And I think this is why it appeals to US, Canadian investors, and also I guess to a lot of Asian investors, because it provides that stability of income as well.

What options do you have in the market for covered calls?

At Global X, we have a suite of covered call products for different exposures. For example, we have the Global X S&P/ASX 200 Covered Call ETF (ASX: AYLD), which is the Australian covered call product, providing exposure to Australian underlying stocks with the option premium. 

We also offer covered call strategies for US indices, such as Global X S&P 500 Covered Call ETF (ASX: UYLD) and Global X Nasdaq 100 Covered Call ETF (ASX: QYLD).

What kind of yields can investors expect?

These products are offering about double digits - around 10% - depending on the underlying assets. The yield fluctuates with the prices, but it's a solid option for those looking for income.

Gold has been a strong performer in 2024, but investors are wondering if there’s still room to run. What are your thoughts on gold and how should investors approach it?

Gold has always been a strong performer, and this year, it's been driven by expectations of inflation. But what’s really pushing the gold price up now is central bank purchases. Many countries are diversifying away from the US dollar, and they’re purchasing more gold as part of that strategy. 

We’re seeing central banks buying about 50 metric tonnes of gold each month, up from about 30 tonnes. If that number rises to 70 metric tonnes, gold prices could easily surpass US$3,000.

In terms of investing, gold can serve both as an inflation hedge and a growth opportunity, especially with increasing demand from central banks. For these reasons we're seeing strong interest in Global X Physical Gold (ASX: GOLD).

Your colleague Justin wrote a spicy piece about why its time for investors to ditch gold miners. Can you summarise the thesis around bullion versus gold equities?

There are merits to both. Gold miners offer exposure to the equity performance of the companies, but with that comes operational risk. Gold itself, however, is a good complement, as you're riding on the increasing gold demand from central banks, without the additional risks associated with mining companies.

Let's turn to defensive equities. What are some of the most compelling low-volatility or multi-factor ETF strategies today?

Volatility is a major concern for many clients and investors right now. While they still want exposure to the market, they’re looking for safer options. 

One strategy we've been discussing with our clients is our US low-volatility, high-dividend yield product. The low-volatility factor helps eliminate some of the risk associated with market swings, while the high-dividend yield offers exposure to sectors that provide consistent income.

For example, our Global X High Yield Low Volatility ETF (ASX: ZYUS), which is a US high-yield, low-volatility product, targets sectors not typically found in the S&P 500, such as industrials and healthcare. 

So it's actually a very good potential rotational or tactical play. You're seeing high volatility now; you can also look into this ETF where it provides this different exposure for a lower volatility and potentially higher yield in the longer-term.

Billy, thanks so much for being involved in The Pitch and sharing your ideas.

Thanks, Vish.