Cash is king while markets shake out

Your questions, answered

Market wrap

US shares finally sold off on high inflation (CPI) figures and the Nasdaq is down about 4.4% for the week, just under its 50-day average. Some good signs: the S&P 500 equal weight (RSP) held up better and US regional banks finished higher. Copper is holding up, zinc is on the edge, and money is rotating into the UK FTSE. In Australia, financials were strong but resources (MVR) fell about 2.5% and the ASX is still under its 200-day average: not a sign of confidence.

How do you see the market with the US midterms and the AI outlook?

The midterms are weighing on markets, with polls pointing to Trump losing one or both houses. There’s pressure for a big announcement before early November. In AI, some areas are slowing and there’s competition for Korean memory makers, so IKO likely needs time to build a base, more of a 2027 story. Money has been hiding in the Magnificent 7, which finally sold off. Expect another couple of weeks of volatility.

Will today’s drop in AI and resources continue, or is it a bottom?

We’ll find out over the next few sessions. Markets have tended to bottom with quick, sharp shakeouts. Resources were weaker than expected, but QRE is still making higher lows within a bigger base. It’s under its 200-day average though, and “nothing good happens under the 200-day”. Best to hold cash and wait for the buying opportunity.

I heard ~30% of US large caps are under their 200-day average. Thoughts?

Yes, breadth is extremely thin. It’s basically been the Magnificent 7. It’s happening globally: Korea’s rally was driven mainly by SK Hynix and Samsung, and our market by the big banks and BHP (QRE is about 40% BHP). US small caps (Russell 2000) have had about 10 weeks almost straight down. It won’t last forever, so have cash ready.

In troubled times, what about defensives like APA, Costco, gold or GARP ETFs?

Still check whether they’re trending up or down. APA is up-trending with a defensive bid; Costco is stuck in a big base; GARP is just above its 200-day. FUEL hit an all-time high but has been very V-shaped. When the pressure comes off, you’d rather buy momentum leaders than defensives. Cash is a position, and you don’t need to be invested right now.

Are ETFs eating the stockbrokers’ lunch?

To an extent. The ASX is shrinking with few IPOs, while ETFs are booming: 500+ in Australia, and more ETFs than stocks in the US. It’s becoming the default way to invest, and there’s plenty of opportunity in ETF land if you pick the right themes.

Does AINF look attractive after the drop?

AINF fell about 4.7% on the day and needs time to repair. It’s still making higher lows on the weekly chart, so we want it to hold. GXAI is at least above its 200-day. Elsewhere: Bitcoin is sitting on its 50-day, Ethereum got hit, gold held up while gold and silver miners were smashed. Build your watchlist and focus on what’s holding up best.

Thoughts on SLVM, MNRS, ETPMPM and ACDC?

Silver and gold miners: avoid for now, we need more data. ETPMPM: palladium is making new lows, so it’s no longer a key idea. ACDC, GMTL and XMET: avoid until lithium miners find a low; VOLT is down about 50% in half a year. A good theme isn’t always a good investment.

Is ITEK a good long-term hold?

It’s essentially a Nasdaq top 30 fund (about 10% each in Nvidia and Apple), and the chart isn’t exciting. If you want big-tech exposure, there are stronger ways to play it, like FANG or ETF Shares’ Magnificent 7 fund. Find the right theme, then the right ETF.

Is there an ETF for global miners, including Australia?

Not a pure-play one on the ASX. QRE and MVR are Australian only; global ones are theme-specific (e.g. copper miners). In the US there’s XME and PICK, though PICK’s top 10 are still about 48% of the fund, with BHP the largest.

Thoughts on VAE for Asian exposure?

VAE’s returns have really been driven by Taiwan and Korea (the AI trade), while China, India and Hong Kong have been weak. Rather than broad regions, I’d lean towards pure-play themes coming out of this correction.

Any small-company ETFs to consider beyond VISM and NJR?

Small caps have been cascading lower. Among global ones, VISM has done better than QHSM, and the US small-cap SVNP has done well. Search “small” on ReviewETF to compare. But I’m not keen on small caps just yet.

Thoughts on a Latin America ETF?

There isn’t one on the ASX. The US ILF is mainly Brazil and Mexico, and it has tracked resources and energy. So you can play the underlying driver here through resources and energy ETFs like QRE and FUEL.

Holding cash: leave it in the bank or park it in an ETF like AAA?

Many platforms make money on cash by paying less than the going rate, which is why AAA (about $5bn) is so popular. AAA can be sold and the proceeds reinvested the same day. I wouldn’t lock money in a term deposit now. Stay liquid.

What’s the ideal ETF portfolio in this market?

Growth-oriented diversified core ETFs have been the stand-outs: DHHF, VDAL and geared GHHF are well above their 200-day averages. The more bonds you add, the weaker it gets: VDHG and VDGR are closer to the 200-day, and bond-heavy VDCO is in a downtrend. Then choose a core/satellite split from 90/10 (conservative) to 50/50 (aggressive). Our targets through the cycle: around 8% a year for the core and 10% for satellites.

Any comments on CRYP?

It’s a mix of crypto and AI/high-performance computing, so it gets hit by both. It’s in a big base without an obvious catalyst. Often it’s better to play the specific theme: Bitcoin for crypto, semiconductors for AI.

How tax-efficient are growth ETFs like IVV and NDQ?

Broad index funds like IVV and NDQ pay small distributions and don’t trade much, so they’ve been fairly tax-effective, as have all-growth diversified ETFs. Compare GDX, which paid a very large distribution after its big run.

What about BNKS for long-term income?

We held it and were stopped out with a small profit. Global banks are roughly half the price of Aussie banks and can do well with inflation, but BNKS is in a corrective phase after a big run, so watch it. For bank debt, a floating-rate fund like QPON looks better than a fixed-rate one, but remember credit risk.

Is the MER the full cost of an ETF?

Not entirely: some funds charge performance fees, and there’s the buy–sell spread and other costs. But compared with the 1–2% managed funds used to cost, a diversified ETF at around 0.2% is excellent value. Choose the right exposure first.

What are you holding right now?

For subscribers, the satellite portfolio is 100% cash. Our Market Health-O-Meter has been on red since mid-September after warning on orange two months ago. The core is in growth-oriented diversified ETFs, and it’s doing exactly the job it should.

Are you still investing in your core?

Yes. We’ve aimed to be fully invested by November because markets have historically finished strongly after the midterms. If the core starts breaking key levels, we’d raise cash in stages: 15–25% of the core, and more if needed.

What protects investors if an ETF issuer goes broke?

ETF assets are held on trust by a custodian, separate from the issuer. Synthetic ETFs that use futures and derivatives are different. Problems have been rare, especially in Australia, where listing requirements are strict.

Are ASX small-cap materials close to a bounce?

Hopefully, but confidence is low. I’d stick with the major resource and copper ETFs. When the majors start moving, the smaller miners usually follow.

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General advice only, given live at the date shown. Questions are answered generally, without knowing your personal circumstances. ETFs and shares mentioned are not recommendations. Market views change quickly, and past performance is not a reliable indicator of future performance.