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On Feb 27, the United States sanctioned Johnson & Johnson's (JNJ - Free Report) COVID-19 vaccine for emergency use, giving the nation a third shot to fight the outbreak, after BioNTech/Pfizer and Moderna. Trials in the United States showed the vaccine was 86% effective while those in South Africa, “where the more transmissible 501.V2 variant of the disease is prevalent, showed 82% effectiveness.”
This is the first single-shot vaccine authorized in the United States. The trials did not indicate any unexpected side-effects. Though the J&J’s trials did not show high efficacy levels as that of Moderna and BioNTech/Pfizer, J&J’s vaccine is easier to store and transport, requiring only normal refrigeration temperatures than the freezing points.
This news will leave an impact on several asset classes, some should gain while some may slip ahead. Below we highlight a few ETF strategies to play the emergency use authorization (EUA) of J&J vaccine.
Play J&J-Heavy ETFs
The news will surely benefit J&J stock over the medium term. Thus, investors can bet on J&J-heavy ETFs like iShares U.S. Pharmaceuticals ETF (IHE - Free Report) , Health Care Select Sector SPDR Fund (XLV - Free Report) andiShares Evolved U.S. Innovative Healthcare ETF (IEIH). The stock has about 23.17%, 9.95% and 9.71% exposure to these funds, respectively (read: JNJ Touches New Highs Post Solid Q4 Earnings: ETFs in Focus).
Play Leisure ETFs
Hopes for proper economic reopening and a considerable rebound in global growth will further strengthen now, resulting in a rally in leisure and transportation stocks. US Global Jets ETF (JETS - Free Report) was up 5.2% last week while Dynamic Leisure and Entertainment Invesco ETF (PEJ) gained 3.5%. Gaming ETF Vaneck (BJK), which offers exposure to a host of casino stocks,also advanced 2.1%. J&J vaccine’s EUA should offer these bunch of stocks another round of runup.
Mid-Cap Value: A Winning Bet
The mid-cap space offers a middle-of-the-road approach between smaller and larger capitalization stocks. While vaccine optimism and easy monetary and fiscal policies are a plus for the economies and markets, the emergence of a new strain of virus is a concern.
In this scenario, mid-cap funds offer the best of both worlds — smaller-capitalization’s growth and cheaper valuation plus larger-capitalization’s stability. Plus, the recent emergence of the value corner of the investing spectrum makes it important to bet on Vanguard Mid-Cap Value ETF (VOE - Free Report) and iShares Russell Midcap Value ETF (IWS).
Diversify Portfolio With Merger & Acquisition ETF
Since the EUA of J&J vaccine will likely boost the reflationary trades even more in the coming days, rates may be at the higher level in the coming days. So, one needs to consider diversification in the portfolio. The M&A space has been an area to watch lately given the flurry of deal activities. In the recent months, we have seen billion-dollar semiconductor, energy and healthcare deals. We expect the momentum to continue ahead.
PwC sees “more 'opportunistic M&A' in North American power and utilities sector”, as quoted on S&P Global Market Intelligence. Investors could easily take advantage of the surge in deals by employing the merger arbitrage strategy in their portfolio. IQ Merger Arbitrage ETF (MNA - Free Report) , which yields about 2.34% annually, thus could come across as a great long-term bet.
Bet on Banks
As banks fare well in a steepening yield curve environment, the related ETFs have chances of gaining ahead. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will earn more on lending and pay less on deposits, thereby leading to a wider spread. This will expand net margins and increase banks’ profits. iShares U.S. Regional Banks ETF (IAT - Free Report) and Invesco KBW Bank ETF (KBWB) would be winning ETF bets if rates remain high ahead(read: Great Rotation From Bonds to Stocks: ETFs to Win).
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How to Trade USFDA's EUA to J&J Vaccine With ETFs
On Feb 27, the United States sanctioned Johnson & Johnson's (JNJ - Free Report) COVID-19 vaccine for emergency use, giving the nation a third shot to fight the outbreak, after BioNTech/Pfizer and Moderna. Trials in the United States showed the vaccine was 86% effective while those in South Africa, “where the more transmissible 501.V2 variant of the disease is prevalent, showed 82% effectiveness.”
This is the first single-shot vaccine authorized in the United States. The trials did not indicate any unexpected side-effects. Though the J&J’s trials did not show high efficacy levels as that of Moderna and BioNTech/Pfizer, J&J’s vaccine is easier to store and transport, requiring only normal refrigeration temperatures than the freezing points.
This news will leave an impact on several asset classes, some should gain while some may slip ahead. Below we highlight a few ETF strategies to play the emergency use authorization (EUA) of J&J vaccine.
Play J&J-Heavy ETFs
The news will surely benefit J&J stock over the medium term. Thus, investors can bet on J&J-heavy ETFs like iShares U.S. Pharmaceuticals ETF (IHE - Free Report) , Health Care Select Sector SPDR Fund (XLV - Free Report) andiShares Evolved U.S. Innovative Healthcare ETF (IEIH). The stock has about 23.17%, 9.95% and 9.71% exposure to these funds, respectively (read: JNJ Touches New Highs Post Solid Q4 Earnings: ETFs in Focus).
Play Leisure ETFs
Hopes for proper economic reopening and a considerable rebound in global growth will further strengthen now, resulting in a rally in leisure and transportation stocks. US Global Jets ETF (JETS - Free Report) was up 5.2% last week while Dynamic Leisure and Entertainment Invesco ETF (PEJ) gained 3.5%. Gaming ETF Vaneck (BJK), which offers exposure to a host of casino stocks,also advanced 2.1%. J&J vaccine’s EUA should offer these bunch of stocks another round of runup.
Mid-Cap Value: A Winning Bet
The mid-cap space offers a middle-of-the-road approach between smaller and larger capitalization stocks. While vaccine optimism and easy monetary and fiscal policies are a plus for the economies and markets, the emergence of a new strain of virus is a concern.
In this scenario, mid-cap funds offer the best of both worlds — smaller-capitalization’s growth and cheaper valuation plus larger-capitalization’s stability. Plus, the recent emergence of the value corner of the investing spectrum makes it important to bet on Vanguard Mid-Cap Value ETF (VOE - Free Report) and iShares Russell Midcap Value ETF (IWS).
Diversify Portfolio With Merger & Acquisition ETF
Since the EUA of J&J vaccine will likely boost the reflationary trades even more in the coming days, rates may be at the higher level in the coming days. So, one needs to consider diversification in the portfolio. The M&A space has been an area to watch lately given the flurry of deal activities. In the recent months, we have seen billion-dollar semiconductor, energy and healthcare deals. We expect the momentum to continue ahead.
PwC sees “more 'opportunistic M&A' in North American power and utilities sector”, as quoted on S&P Global Market Intelligence. Investors could easily take advantage of the surge in deals by employing the merger arbitrage strategy in their portfolio. IQ Merger Arbitrage ETF (MNA - Free Report) , which yields about 2.34% annually, thus could come across as a great long-term bet.
Bet on Banks
As banks fare well in a steepening yield curve environment, the related ETFs have chances of gaining ahead. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will earn more on lending and pay less on deposits, thereby leading to a wider spread. This will expand net margins and increase banks’ profits. iShares U.S. Regional Banks ETF (IAT - Free Report) and Invesco KBW Bank ETF (KBWB) would be winning ETF bets if rates remain high ahead(read: Great Rotation From Bonds to Stocks: ETFs to Win).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>