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The first quarter of the year was incredible, with major indexes hitting all time new highs or trading near all time highs. S&P 500 ended the quarter with a 10% gain and almost 20% higher than the lows of Oct 2011.
Meanwhile, the Dow achieved a gain of 11.3% in the quarter, suggesting to many that a bull market is back (Top Performing ETFs of the First Quarter).
Consequently, for the ETF universe, the first quarter of the year was pretty impressive with quite a few ETFs experiencing heavy inflows and posting double-digit gains as well. While equities have experienced heavy inflows for quite some time, bond ETFs still remain popular, meaning that all investors haven’t jumped into equities just yet.
Moreover, the resurgence in the market got a further boost from encouraging economic data like rising home sales numbers and an improving employment scenario. Given the strong fundamentals, the markets are expected to continue with its bullish rally going forward.
However, some believe that major indexes appear to be overbought, meaning that there may be a pullback in the market. We have already started to see this in recent trading sessions, suggesting that the market may be due for a breather here.
Yet given some of the bullish underlying data and the boost from the Fed, this trend could have legs after a consolidation period. In such a scenario, we would like to highlight a few ETF picks for those looking to buy on the dip and get into some solid, well diversified names, in hopes of a continuation of the bullish trend after this dip is over (3 ETF Strategies For Long Term Success).
Global X Super Dividend (SDIV)
SDIV represents a compelling product to invest in during times of any market pullback. SDIV is an equally weighted basket of 100 high yield stocks from around the world. With 30% exposure in U.S. equities, the fund also provides access to securities in Europe, Australia, Asia, Canada and Latin America.
Among sector allocation, real estate, financial services and telecommunication remain the top three choices for the fund.
The fund’s tilt towards REITs has really worked well as these securities represent an alluring blend of higher returns and impressive yields. Undoubtedly, the U.S. REIT industry has posted a good performance, but a blend of U.S. and international REIT ETFs has been outstanding (Real Estate ETFs--Real Winners in 2013?).
On the other hand, financials may prove to be a good investment opportunity this quarter as well. Lately, the sentiment for the sector has been quite bullish and should continue to provide good returns. And lastly with wireless usage gaining momentum in emerging markets, telecommunications outside U.S. should continue to positively impact the ETF.
Also, the 30-Day SEC yield at 6.9% represents a good opportunity for investors to generate some income at times of a major pullback in the market. The fund has gained 7.1% in the first quarter of the year.
WisdomTree Japan Hedged Equity Fund (DXJ)
DXJ is another interesting fund to invest in during a pullback. Japanese equities represent a good investment opportunity at present, as Prime Minister Shinzo Abe continues with its aggressive policies in order to revive back the economic growth of the country (DXJ--Best ETF to Play the Japan Rally).
The central Bank of Japan or BOJ is all set for another round of monetary stimulus for the country which should further boost the Japanese equities and weaken the yen which had appreciated tremendously in the past few years. With that being said, ETFs tracking Japan should continue to gain momentum even if the market heads for any pullback.
And with Japanese equities gaining strength and the yen depreciating, DXJ can prove to be the right choice for investors as it has been designed to provide a hedge against currency exposure.
In the first quarter of the year, DXJ turned out to be the most popular ETF in terms of inflows. The surging product accumulated $4 billion of fresh cash in the first quarter, crushing U.S.-centric funds in the process.
The ETF gained 17.2% in the quarter, making it one of the best performing funds in the Japanese equity space.
The fund manages an asset base of $5.4 billion and trades at volume levels of more than 5.3 million shares a day. This asset base is invested in a basket of 264 securities and the fund charges a fee of 48 basis points on an annual basis (As Yen Weakens, Currency Hedged ETFs Soar).
PowerShares S&P 500 Low Volatility ETF (SPLV)
In case of a market pullback, investing in ETFs that carry lower risks is a prudent option for investors. In this context, SPLV represents a good option while still providing investors will great diversification and high volume.
SPLV comprises of stocks from the entire universe of the S&P 500 that have exhibited lowest historic volatility over the trailing twelve-month period. In case of a market slump, these stocks could be better positioned and thus perform better going forward.
This is the reason why the ETF has a tilt towards low beta sectors like consumer staples and utilities. These two segments together account for 55.2% of the asset base, so there is some concentration risk, but it should help to control volatility levels.
SPLV appears to be the most popular ETF in the segment trading at volume levels of more than 2 million shares a day. The fund manages an asset base of $4.4 billion and invests it in a basket of 100 securities. In terms of expenses though, SPLV charges a fee of 25 basis points annually, so it is pretty low cost.
It should be noted that despite the S&P 500’s strength, the low volatility ETF has been in focus and actually beating the market. The ETF has experienced substantial asset inflow and has generated a return of 12.9% in the first quarter of the year.
SPDR S&P Transportation ETF (XTN)
Transportation is another segment of the market which is poised for solid growth this year and any temporary pullback in the market should not impact its potential for growth (Transport ETFs: Can the Surge Continue?).
With fundamentals for the economy improving, the transport industry is sure to benefit as more goods are moved around and businesses gather momentum.
With this focus, XTN represents a good investment opportunity to play the sector. The fund has $45.03 million in asset under management and provides access to 39 securities.
Trucking, Airlines, Air Freight & Logistics and Railroads get double-digit allocation in the fund while a small allocation has also been made to marine firms. Among individual holdings, the fund does not invest more than 3.69% in any company. The fund charges a fee of 35 basis points annually.
Even with some recent shakiness in the market, there are a number of segments which remain interesting values. It could be a good idea to view any dips as buying opportunities, especially in the aforementioned funds, which look to hold up better than most in Q2, no matter what happens.
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