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Amid the persistent trade worries and global growth concerns, U.S. stocks logged in the best performance last year since 2013. The rally was powered by round of upbeat data, Fed rate cuts, stronger-than-expected earnings and positive developments in trade.
Additionally, the U.S. economy is on a strong growth path with job additions at the fastest pace last year and unemployment dropping to the lowest level since 1969. The housing market is also clearly showing signs of a strong recovery with lower mortgage rates and slower home price growth acting as catalysts (read: 4 Big ETF Stories of 2019 That Will Continue in 2020).
The trend is likely to continue this year as well with the phase-one trade deal between Washington and Beijing to be signed within a couple of weeks. It is expected to ease global growth concerns. Further, the Fed is expected to keep interest rates steady after three rate cuts last year. The combination of factors will continue to fuel optimism into the stock market. However, geopolitical tension, uncertainty about the second part of the trade deal and elections may bring volatility at regular intervals. Notably, escalation in Middle East tensions following the U.S. air strike in Baghdad last week that killed top Iranian commander Qasem Soleimani resulted in fears of a protracted conflict in the region.
Against such a backdrop, we have highlighted a pack of ETFs that are poised to outperform in 2020:
iShares PHLX Semiconductor ETF (SOXX - Free Report) : The semiconductor corner of the broad technology sector is expected to head higher on trade optimism as chip stocks have a lot of exposure to China. These derive a large portion of their revenues from China since it is the world’s biggest chip market and also have supply chains in the country. SOXX offers exposure to U.S. companies that design, manufacture and distribute semiconductors and has amassed $2.3 billion in its asset base. It charges a fee of 46 bps a year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Semiconductor Outperforms in 2019: 5 Best ETFs & Stocks).
Vanguard Real Estate ETF (VNQ - Free Report) : The low interest rate environment has bolstered the lure of rate-sensitive sectors like real estate. This is especially true as decline in yields and mortgage rates make buyout of real estate or refinancing mortgages more affordable. Affordability of real estate boosts activity in the market and lifts real estate stocks. While there are several options in the real estate space, VNQ is the most popular with AUM of $36.7 billion. It has a Zacks ETF Rank #2 with a Medium risk outlook.
Utilities Select Sector SPDR (XLU - Free Report) : Amid uncertainty, utilities sector is expected to see continued surge. This is because it is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid market turmoil. Additionally, utilities offer solid dividend payouts and excellent capital appreciation over the longer term. XLU has accumulated $10.9 billion in its asset base and has a Zacks ETF Rank #2 with a Medium risk outlook (read: ETF Strategies to Stave Off Middle East Tension).
iShares Edge MSCI Min Vol USA ETF (USMV - Free Report) : Since trade uncertainty, election and geopolitical tension continue to raise volatility in the stock market, investors should focus on low volatility ETFs like USMV. These products have the potential to outpace the broader market in bearish conditions or in an uncertain environment while providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. USMV has AUM of $37.3 billion and a Zacks ETF Rank #2 with a Medium risk outlook.
SPDR Gold Trust ETF (GLD - Free Report) : The dual tailwinds of easing policies and flight to safety amid geopolitical tensions and global growth worries will raise the appeal for gold, pushing prices higher. GLD is the largest and the most-popular gold ETF with AUM of $44.6 billion and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Gold Surges to 7-Year High: ETFs to Tap).
Vanguard Value ETF (VTV - Free Report) : Value ETFs seek to capitalize on inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with growth and blend counterparts. Additionally, value stocks are less susceptible to trending markets and their dividend payments serve as safety in times of market turbulence. VTV has AUM of $55.7 billion and a Zacks ETF Rank #2 with a Medium risk outlook
iShares Core S&P Small-Cap ETF (IJR - Free Report) : Small caps are expected to outperform this year as these are well insulated from international headwinds such as geopolitical tensions and trade war. These pint-sized stocks are considered safe and better plays if any political issue or economic turmoil creeps into the picture. Additionally, lower interest rates bode well for the small-cap stocks, perking up economic activities and resulting in higher spending, thus boosting domestically focused companies. IJR, offering broad exposure to U.S. small-cap stocks, seems a compelling choice. It has AUM of $48.2 billion and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Top-Ranked Small-Cap ETFs to Buy for 2020).
iShares US Aerospace & Defense ETF (ITA - Free Report) : Defense ETFs are poised to surge from any escalation in U.S.-China trade drama and geopolitical tensions, especially in the Middle East. ITA has AUM of $5.6 billion and a Zacks ETF Rank #2 with a Medium risk outlook (read: 10 Top-Performing ETFs of the Past Decade).
ROBO Global Healthcare Technology and Innovation ETF (HTEC - Free Report) : Healthcare is undergoing a dramatic, technology-driven revolution. Advanced technologies like AI and robotics are transforming the space with disruption in diagnosis, regenerative medicine, robotic surgery, genomic analysis, DNA sequencing and smart monitoring devices. This technology revolution is offering a potential opportunity to investors over the next decade. With AUM of $6.6 million, HTEC provides exposure to global companies leading the healthcare technology revolution.
Defiance Next Gen Connectivity ETF (FIVG - Free Report) : The fifth generation (5G) wireless network is set to be rolled out this year. Gartner forecasts that 5G wireless infrastructure spending will jump to nearly $4.2 billion this year from $2.2 billion in 2019. ResearchAndMarkets.com estimated the 5G infrastructure market to be valued at $784 million in 2019 and is projected to reach $47,775 million by 2027, at a CAGR of 67.1%. As a result, FIVG appears to be a hot pick for 2020. This ETF offers exposure to companies engaged in the research & development or commercialization of systems and materials used in 5G communications. It debuted in March last year and has grossed in $175.8 million in its asset base since then (read: 9 Successful New ETFs of 2019).
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10 Power-Packed ETFs to Buy for 2020
Amid the persistent trade worries and global growth concerns, U.S. stocks logged in the best performance last year since 2013. The rally was powered by round of upbeat data, Fed rate cuts, stronger-than-expected earnings and positive developments in trade.
Additionally, the U.S. economy is on a strong growth path with job additions at the fastest pace last year and unemployment dropping to the lowest level since 1969. The housing market is also clearly showing signs of a strong recovery with lower mortgage rates and slower home price growth acting as catalysts (read: 4 Big ETF Stories of 2019 That Will Continue in 2020).
The trend is likely to continue this year as well with the phase-one trade deal between Washington and Beijing to be signed within a couple of weeks. It is expected to ease global growth concerns. Further, the Fed is expected to keep interest rates steady after three rate cuts last year. The combination of factors will continue to fuel optimism into the stock market. However, geopolitical tension, uncertainty about the second part of the trade deal and elections may bring volatility at regular intervals. Notably, escalation in Middle East tensions following the U.S. air strike in Baghdad last week that killed top Iranian commander Qasem Soleimani resulted in fears of a protracted conflict in the region.
Against such a backdrop, we have highlighted a pack of ETFs that are poised to outperform in 2020:
iShares PHLX Semiconductor ETF (SOXX - Free Report) : The semiconductor corner of the broad technology sector is expected to head higher on trade optimism as chip stocks have a lot of exposure to China. These derive a large portion of their revenues from China since it is the world’s biggest chip market and also have supply chains in the country. SOXX offers exposure to U.S. companies that design, manufacture and distribute semiconductors and has amassed $2.3 billion in its asset base. It charges a fee of 46 bps a year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Semiconductor Outperforms in 2019: 5 Best ETFs & Stocks).
Vanguard Real Estate ETF (VNQ - Free Report) : The low interest rate environment has bolstered the lure of rate-sensitive sectors like real estate. This is especially true as decline in yields and mortgage rates make buyout of real estate or refinancing mortgages more affordable. Affordability of real estate boosts activity in the market and lifts real estate stocks. While there are several options in the real estate space, VNQ is the most popular with AUM of $36.7 billion. It has a Zacks ETF Rank #2 with a Medium risk outlook.
Utilities Select Sector SPDR (XLU - Free Report) : Amid uncertainty, utilities sector is expected to see continued surge. This is because it is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid market turmoil. Additionally, utilities offer solid dividend payouts and excellent capital appreciation over the longer term. XLU has accumulated $10.9 billion in its asset base and has a Zacks ETF Rank #2 with a Medium risk outlook (read: ETF Strategies to Stave Off Middle East Tension).
iShares Edge MSCI Min Vol USA ETF (USMV - Free Report) : Since trade uncertainty, election and geopolitical tension continue to raise volatility in the stock market, investors should focus on low volatility ETFs like USMV. These products have the potential to outpace the broader market in bearish conditions or in an uncertain environment while providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. USMV has AUM of $37.3 billion and a Zacks ETF Rank #2 with a Medium risk outlook.
SPDR Gold Trust ETF (GLD - Free Report) : The dual tailwinds of easing policies and flight to safety amid geopolitical tensions and global growth worries will raise the appeal for gold, pushing prices higher. GLD is the largest and the most-popular gold ETF with AUM of $44.6 billion and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Gold Surges to 7-Year High: ETFs to Tap).
Vanguard Value ETF (VTV - Free Report) : Value ETFs seek to capitalize on inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with growth and blend counterparts. Additionally, value stocks are less susceptible to trending markets and their dividend payments serve as safety in times of market turbulence. VTV has AUM of $55.7 billion and a Zacks ETF Rank #2 with a Medium risk outlook
iShares Core S&P Small-Cap ETF (IJR - Free Report) : Small caps are expected to outperform this year as these are well insulated from international headwinds such as geopolitical tensions and trade war. These pint-sized stocks are considered safe and better plays if any political issue or economic turmoil creeps into the picture. Additionally, lower interest rates bode well for the small-cap stocks, perking up economic activities and resulting in higher spending, thus boosting domestically focused companies. IJR, offering broad exposure to U.S. small-cap stocks, seems a compelling choice. It has AUM of $48.2 billion and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Top-Ranked Small-Cap ETFs to Buy for 2020).
iShares US Aerospace & Defense ETF (ITA - Free Report) : Defense ETFs are poised to surge from any escalation in U.S.-China trade drama and geopolitical tensions, especially in the Middle East. ITA has AUM of $5.6 billion and a Zacks ETF Rank #2 with a Medium risk outlook (read: 10 Top-Performing ETFs of the Past Decade).
ROBO Global Healthcare Technology and Innovation ETF (HTEC - Free Report) : Healthcare is undergoing a dramatic, technology-driven revolution. Advanced technologies like AI and robotics are transforming the space with disruption in diagnosis, regenerative medicine, robotic surgery, genomic analysis, DNA sequencing and smart monitoring devices. This technology revolution is offering a potential opportunity to investors over the next decade. With AUM of $6.6 million, HTEC provides exposure to global companies leading the healthcare technology revolution.
Defiance Next Gen Connectivity ETF (FIVG - Free Report) : The fifth generation (5G) wireless network is set to be rolled out this year. Gartner forecasts that 5G wireless infrastructure spending will jump to nearly $4.2 billion this year from $2.2 billion in 2019. ResearchAndMarkets.com estimated the 5G infrastructure market to be valued at $784 million in 2019 and is projected to reach $47,775 million by 2027, at a CAGR of 67.1%. As a result, FIVG appears to be a hot pick for 2020. This ETF offers exposure to companies engaged in the research & development or commercialization of systems and materials used in 5G communications. It debuted in March last year and has grossed in $175.8 million in its asset base since then (read: 9 Successful New ETFs of 2019).
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 >>