Back to top

Image: Bigstock

ETF Investing Areas Looking Attractive After a Blue Wave

Read MoreHide Full Article

Wall Street has impressed investors with a record rally as stocks climbed to all-time high levels. The Dow Jones Industrial Average was up 0.7% on Jan 7. Moreover, the other two broader indices, the S&P 500 and Nasdaq Composite, gained 1.5% and 2.6%, respectively, on the day. In fact, it was the first-ever climb above 13,000 for the tech-heavy Nasdaq Composite.

The market euphoria can be attributed to Democrats taking control of the U.S. Senate with two Georgia victories. Notably, an effective control of the U.S. Congress by the Democrats is likely to bring in higher fiscal stimulus funding and faster implementation of nationwide vaccination in order to curb the pandemic along with higher allotment of funds for infrastructural developments and boosting jobs in the near future.

Meanwhile, many economists and financial experts are speculating and fearing that complete control of Democrats over the Congress may lead to implementation of higher corporate taxation and stricter regulations on big technology and communication providers. However, it is being expected that such changes will not be imposed immediately.

Going on, JJ Kinahan, chief market strategist at TD Ameritrade, has said the election results give investors “more clarity” by “solidifying Democrat control in Washington and increasing expectations of more stimulus to come,” per a CNBC article.

Thus, for investors looking to prepare their portfolios considering the major change in the U.S. political environment, we have highlighted some ETF investing areas that are expected to boom in the current situation:

Clean Energy ETFs

Alternative energy includes any energy source that acts as a replacement to conventional and non-renewable fossil fuel. This space has been in the spotlight of late for many reasons. Increasingly, large corporations are making or promising investments to gain the carbon neutral status. Notably, favorable government initiatives and federal policies, which include tax incentives to encourage installation, have accelerated global market growth for clean energy in 2020. Moreover, despite turbulences arising from the coronavirus pandemic, both solar and wind energies have been dominating the global renewable space of late.

The space is expected to get stronger under the Joe Biden administration. Biden is expected to talk about the climate emergency on global platforms and ensure that the United States achieves a 100% clean energy economy and net-zero emissions, no later than 2050. Going on, Biden’s climate and environmental justice proposal will make a federal investment of $1.7 trillion over the next 10 years, leveraging further private sector and state and local investments to stand at more than $5 trillion.

Thus, investors can consider the following ETFs -- iShares Global Clean Energy ETF (ICLN - Free Report) , Invesco Solar ETF (TAN - Free Report) , First Trust NASDAQ Clean Edge Green Energy ETF (QCLN - Free Report) and ALPS Clean Energy ETF (ACES) (read: Go Greener in 2021 With Best ETFs & Stocks of 2020).

Marijuana ETFs

The Biden administration is expected to decriminalize cannabisat a federal level in the United States. The House passed a bill in December to decriminalize and tax marijuana at the federal level but Senate Republicans hindered the success of the measure. The bill aims to decriminalize cannabis at the national level for the first time and exclude it from the list of federally controlled substances and remove certain federal convictions. Now, with the Democrats controlling the U.S. Senate, it might get easier for the Biden administration to take steps toward decriminalizing marijuana.

Going on, vice-president Kamala Harris has always supported cannabis decriminalization. She is also the lead sponsor of the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act of 2019, which sought to end federal prohibition of cannabis, per a Reuters article. Thus, investors can consider The Cannabis ETF (THCX - Free Report) , ETFMG Alternative Harvest ETF (MJ - Free Report) , AdvisorShares Pure Cannabis ETF (YOLO) and Global X Cannabis ETF (POTX) (read: Cannabis ETFs Soar on News of Democrat's Winning Senate

Momentum ETFs

While the broader stock market is expected to gain on optimism surrounding a rebounding U.S. economy, positive developments in coronavirus vaccine research, second trench of coronavirus-aid package, an ultra-dovish monetary stance maintained by the Fed, record low benchmark interest rate of 0-0.25% momentum investing will likely take centerstage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Investors can consider iShares Edge MSCI USA Momentum Factor ETF (MTUM), Invesco DWA Momentum ETF (PDP - Free Report) , Invesco S&P MidCap Momentum ETF (XMMO - Free Report) , VictoryShares USAA MSCI USA Value Momentum ETF (ULVM) and SPDR Russell 1000 Momentum Focus ETF (ONEO) (read: 3 Reasons Setting the Tone Right for Momentum ETFs).

Material ETFs

The space is expected to remain strong as coronavirus vaccine rollout and introduction of another round of fiscal stimulus are pointing toward faster recovering economy. Moreover, there are speculations about a bigger stimulus package after President-elect Biden takes over the administration and with a Democrats-controlled Senate, the Biden administration might not have to compromise much for getting the funds passed. Moreover, Biden aims at increasing the expenditures on infrastructure development that can bode well for the materials space. Against this backdrop, investors can look at iShares U.S. Basic Materials ETF (IYM - Free Report) , The Materials Select Sector SPDR Fund (XLB - Free Report) , Vanguard Materials ETF (VAW) and Fidelity MSCI Materials Index ETF (FMAT).

Energy ETFs

The energy sector was severely affected by the pandemic-induced historically low oil price levels due to the dual blows of low demand and surplus supplies. Thanks to production cuts by major oil producers and signs of recovery in demand as some business lockdowns have been lifted globally, oil prices have been observed to rebound from their April-lows. The supply and demand balance is tightening. With the vaccine rollout and another round of fiscal stimulus, faster economic growth is expected. Also, a rising demand level as well as improving and more stable global relationships is expected to drive global economic growth and the sector.

Thus, investors can consider betting on Energy Select Sector SPDR (XLE - Free Report) , SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) , VanEck Vectors Oil Services ETF (OIH) and iShares U.S. Oil Equipment & Services ETF (IEZ) (read: Oil & Energy ETFs Rallying On Output Cuts, Can The Rally Last?).

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 >