Gold, regional banks, Aerospace: ETF trade winners and losers

Blanke Schein Wealth Management CIO Robert Schein joins Yahoo Finance Live to discuss the best and worst stock picks for investor portfolios amid the debt ceiling debate and the economic slowdown.

Video transcript

AKIKO FUJITA: While major indices are trading pretty flat about 40 minutes before the closing bell, we're going to be taking stock of your portfolio with Robert Schein, Blanke Schein Wealth Management chief investment officer. And Rob, you've got some stock picks for us. Also some names you want people to steer clear of, but let's start with your top picks.

And we're going to kick off with this one-- Invesco Aerospace and Defense ETF. The ticker is PPA. You say there's a lot of tailwinds you're working for this one.

ROBERT SCHEIN: Yeah. If you look at defense year to date, it's almost been a laggard. Obviously, large-cap growth is leading on all indices. And in a market like this, we always like to look for value and specifically who hasn't participated.

Well, it's up year to date. We believe it has room to run. Obviously, the debt ceiling right now is in full debate whether the $842 billion and proposed for defense budget by the US continues. But hey, look, around the world, geopolitically, there's a lot of tensions.

So we believe be defensive with your portfolios, be diversified. But one way to do that is the PPA. It's the aerospace and defense. It's a diversified approach to adding defense to your portfolio for that reason.

SEANA SMITH: One of the other picks that you have here is you like where gold is trading at right now. You specifically like GLD. Why do you see more upside with gold prices, which have already had a strong start to the year?

ROBERT SCHEIN: Yeah, gold's one of those where if you go back and look at the analogs of 2011 when we had the debt ceiling debate, post that we had equity markets sell off. We also saw a gold kind of bid. We believe we could see a lot of that playing out.

Equity markets are, obviously, just trading flat right now the last couple of days as we get closer to the debt ceiling. And I think post debt ceiling whatever happens, equity markets will then trade, ultimately, maybe negatively on the news. So therefore, add some gold in your portfolio. We believe it's under owned and it's a great diversifier, especially in an inflationary environment. And it actually does perform very well over the long term.

AKIKO FUJITA: Robert, one ticker you're staying away from, KRE. And this is one that we have heard from other guests as well. This is the regional banking ETF. When you look at what has led up to where we are today over the last several months, the stress that we've seen in the regional banking system, have we seen the worst of it?

ROBERT SCHEIN: Well, if I look at our practice here and just watch it, consumer behaviors, we don't believe that the small regional banks-- and that's what this is, is an ETF that basically is a diversified approach to own small regional banks if you like that exposure. We believe it's way too risky. So we're not a fan of this, so we would stay away from it.

But like I said, if you look at our little practice here, we've seen, you know, millions of dollars just right across the street from the small regional banks year to date come into Blanke Schein Wealth Management. $25 million just for the first half of this year simply because people are leaving those banks and they're seeking safe haven. And so we believe that could continue. There's potentially one or two more banks out there that might need some support and some assistance and so that's why we be cautious of these indices.

SEANA SMITH: Another pick that you don't like is the Russell 2000. Some of those small caps have actually been doing decent here over the last week or so, but why do you think that brief, that short little pop is going to be short lived?

ROBERT SCHEIN: Well, they've underperformed year to date. And like anything, the small banks-- or excuse me, the small companies, if you will in this case, don't perform if you're going well if you're going into a recession. So if we have a slower economy, less liquidity, more austerity post the debt ceiling in terms of spending.

And then the lending that we just talked about, the regional banks, the lending is going to be more restrictive all across the board. That doesn't really set up too well for the Russell or even small caps particularly. There is a time and place to own them, but not when you have a recession looming overhead and there's a lot of clouds on the horizon. So small caps, you want to stick with large caps over small caps. There will be a time to own them, but right now just be more defensive in your portfolio.

SEANA SMITH: All right, Robert Schein, we're going to leave it there. Thanks so much.