Back to top

Image: Bigstock

ETF Strategies to Play as Vaccine Hopes Firm With Moderna Data

Read MoreHide Full Article

It’s been really a sweet November for the global economy and markets thanks to back-to-back release of upbeat coronavirus vaccine data. U.S. biotech firm Moderna (MRNA) announced on Nov 16 that its experimental vaccine against COVID-19 was 94.5% effective. This marks the second major advancement in the COVID-19 vaccine research.

Last week, news that a Pfizer (PFE - Free Report) and BioNTech (BNTX) vaccine candidate was more than 90% effective in avoiding COVID-19 in its clinical trial instigated a sharp market rally. This raised hopes of a return to normalcy sooner than expected. Moreover, the likelihood of a divided Congress in the United States, which means status quo and chances of no major policy changes in the medium term, should aid an equity rally in the coming days.

Against this backdrop, below we highlight a few ETF strategies that should emerge winners in the near term.

Rotation to Cyclical Sector ETFs

Rollout of vaccines along with a dovish Fed means an uptick in economic activities and return to normalcy in the medium term. Better-than-expected third-quarter earnings results and some decent economic indicators like manufacturing activities, jobs data and home sales for previous months (despite the COVID-19 surge) might also lead investors to shift their focus to an economic recovery.

We can expect a renewed rally in cyclical ETFs or the laggards of the coronavirus pandemic. In this regard, Industrial Select Sector SPDR ETF (XLI - Free Report) , Energy Select Sector SPDR Fund (XLE) and SPDR S&P Bank ETF (KBE) could be lucrative bets. These sectors have suffered a lot during the pandemic due to slowed growth. Now is the time for them to stage an upturn.

Airlines: Specially a Sweet Spot?

Airline stocks (one of the main victims of the coronavirus crisis) have been trying to bounce back on a rebound in travel demand.  This is especially true as the number of people going through airport security screening checkpoints improved in the August-September period. Better consumer confidence and some federal aid also boosted the airlines ETF in the past six months. Vaccine news offered another fresh lease of hope to the fund. US Global Jets ETF (JETS - Free Report) gained more than 3.7% on Nov 16.

Dow Jones to Topple S&P 500 & Nasdaq?

The Dow jumped to a record high on Monday after the Moderna news. This is because the Dow Jones has suffered the most among the big three U.S. indexes while the Nasdaq has gained the maximum. Now we are likely to see a trend reversal. One can thus bet on the Dow Jones-based (DIA - Free Report) ETF if vaccine hopes strengthen.

Value ETFs to Outperform

The vaccine news also indicates reflationary pressure in the near term and the uptick in benchmark U.S. treasury yields.  However, with the rising real interest rates, the lure for value investing should start to brighten up. iShares Russell 1000 Value ETF (IWD - Free Report) could be a good pick in this regard.

Go for High-Yield Options

The hunt for dividend in the equity market is always steady irrespective of how it is behaving. The craving for current income might have turned more acute at the current level as the benchmark U.S. treasury yields dropped to 0.89% as on Nov 13 from 1.88% recorded at the start of the year. In fact, the benchmark yield slumped to as low as 0.52% this year as safe-haven trades took an upper hand amid the pandemic.  

Now with upbeat equity environment, investors can turn to higher-yielding corporate bonds and dividend stocks. iShares IBoxx High Yield Corporate Bond ETF (HYG - Free Report) and GlobalX SuperDividend U.S. ETF (DIV - Free Report) are two lucrative options in this regard.

Small Caps to Cheer

Small-cap stocks that are heavily dependent on the domestic economy should also soar ahead as this beaten-down zone will now be able to take full advantage of the solid economic recovery. Small-cap ETF (IWM - Free Report) could thus be tapped for solid gains.

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 >>