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5 ETFs to Buy for June

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May was decent for stocks, mainly due to the gradual economic reopening and lower virus cases in the United States. Vaccine distribution and upbeat economic data points gave a material boost to the U.S. treasury yields. As of Jun 1, 2021, the benchmark U.S. treasury yield was 1.62% versus 0.93% noted at the start of the year.

The ISM manufacturing report for May was roughly in line with expectations, showing continued strong growth, rising commodity costs and higher prices. Expectations for job creation is also higher. Economists expect the data of a creation of around 674,000 jobs in the month of May, after April’s read came in below expectations at 266,000as quoted on CNBC (read: 5 ETFs to Play Rising Yields).

Notably, June is not known for good returns. A consensus carried out from 1950 to 2019 shows that June ended up offering positive stock returns in 37 years and negative returns in 34 years, per moneychimp.com, with an average positive return of 0.06%.

But this year, the investing and stimulus (both government and the Fed) backdrop is totally different. Global economies and corporates will leave no stone unturned to register a fast rebound from the COVID-19 slump.

Against this backdrop, we highlight a few ETF options that can come across as intriguing bets for the month. The below-mentioned ETFs have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

S&P 500 – Vanguard SP 500 ETF (VOO - Free Report)

If you are nervous about the single stock-picking approach in the current overvalued environment, you can simply bet on the S&P 500 through a low-cost option like VOO.Warren Buffett is also a proponent of low-cost index fund investing. The average annualized total return for the S&P 500 index over the past 90 years is around 10% before adjusting for inflation and the index gives exposure to 80% of the U.S. market cap, per financial veterans. It yields about 1.39% annually and charges only 3 bps in fees. The fund has a Zacks Rank #2.

Dividend – Vanguard High Dividend Yield ETF (VYM - Free Report)

The underlying FTSE High Dividend Yield Index which is consists of common stocks of companies that pay out dividends that generally are higher than average.Dividend stocks often beat their non-dividend paying counterparts amid market uncertainty. Stocks with high dividend point to quality investing — a pre-requisite to making money in a volatile environment. Even if there is capital loss, dividend payments make up for it to a large extent. Moreover, at the record-low yield environment, Zacks Rank #1 VYM offers a juicy 2.80% yield annually.

Communication – Communication Services Select Sector SPDR ETF (XLC - Free Report)

The Zacks Rank #2 fund provides an effective representation of the communication services sector of the S&P 500 Index. The COVID-19 outbreak brightened the appeal for the work-and-learn-from-home culture. With exponential growth in video and other bandwidth-intensive applications owing to the mass adoption of smartphones and increased deployment of 5G technology, the communication industry is to set to rule irrespective of the pandemic. The fund is heavy on the likes of Facebook, Alphabet, T-Mobile, Charter Communications and Comcast.

Small-Caps – iShares SP SmallCap 600 Growth ETF (IJT - Free Report)

Massive Fed and government pandemic stimulus added fuel to the small-cap rally past month. Reopening of economies, lower covid cases and the relative previous underperformance compared to the large caps, should add more strength ahead. Investors thus can bet on this Zacks Rank #2 fund (read: Small Caps Enjoy Longest Run Since 1995: 5 ETF Winners).

Financials – Vanguard Financials ETF (VFH - Free Report)

This has been a beaten-down space amid pandemic. However, with easing social distancing restrictions, the return of risk-on trade sentiments and higher inflationary pressure, long-term bond yields should jump higher in the near term. This should benefit financial stocks that perform well in a rising rate environment. The fund has a Zacks Rank #2.

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