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5 ETFs That Make Attractive Bets for Q3

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Investors have remained optimistic about the U.S. economic recovery so far this year. Certain factors like the Fed’s continuous support, introduction of strong fiscal stimulus, accelerated coronavirus vaccine distribution and gradual reopening of non-essential businesses are keeping investors upbeat.

Moreover, a strong first half has made investors optimistic about the rest of 2021. According to Refinitiv data going back to 1950, a double-digit gain in the first half has been never followed by an annual decline in the Dow Jones Industrial Average and S&P 500 indexes that year, per a CNBC article.

Considering the current scenario, we present five ETF choices that can be good additions to the portfolio amid the rapidly recovering U.S. economy from the pandemic-led slump:

The Industrial Select Sector SPDR Fund (XLI - Free Report)

The industrial sector, which faced disruptions in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. The latest update on U.S. manufacturing output looks impressive as the accelerated pace of coronavirus vaccine rollout is helping tame the outbreak and gradually reopen the economy. Per the Fed’s recently released data, total industrial production rose 0.8% in May. Going on, there was 0.9%, 1.2% and 0.2% rise, respectively, in manufacturing output, mining and utilities production.

The fund tracks the Industrial Select Sector Index. It has an AUM of $19.17 billion and charges a fees of 0.12%. XLI carries a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook (read: ETFs to Gain as US Industrial Output Rises in May).

Vanguard Consumer Discretionary ETF (VCR - Free Report)

The latest U.S. consumer confidence data looks impressive as the metric has surged to its highest level in June in about 16 months. The Conference Board's measure of consumer confidence index stands at 127.3, comparing favorably with an upwardly revised reading to 120.0 in May. Moreover, June’s reading surpassed the consensus estimate of 119.0, per a Reuters’ poll.

This fund currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index. VCR charges investors 10 basis points in annual fees. The product has managed $6.17 billion in its asset base and carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: 5 Amazon ETFs to Tap on Record-Breaking Prime Day Sales).

Invesco KBW Bank ETF (KBWB - Free Report)

The banking sector is increasingly gaining investor attention as the prospects of the space look bright amid the rebounding U.S. economy. Notably, the Institute of International Finance (IIF) expects U.S. banks to report “record level” earnings in 2021, according to a CNBC article. 

It is a well-known fact that an improving U.S. economy can continue to perk up demand for loans. Also, steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margin. As a result, net interest income, which constitutes a chunk of banks’ revenues, is expected to have received support from the steepening of the yield curve and a modest rise in loan demand.

The fund is based on the KBW Nasdaq Bank Index. It is a modified-market capitalization-weighted index of companies, primarily engaged in U.S. banking activities. It has AUM of $2.35 billion and charges 0.35% in expense ratio. The fund carries a Zacks ETF Rank #2, with a High-risk outlook (read: Top-Ranked Banking ETFs to Bet on Now).

Vanguard S&P Small-Cap 600 ETF (VIOO - Free Report)

Small-cap stocks, as indicated by the Russell 2000 Index, have been outperforming the broader market and hitting new all-time highs in the recent past. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are thus well-positioned to outperform when the economy improves. The latest economic data also indicate toward an improving economy.

The fund seeks to track the performance of the S&P Small-Cap 600 Index. It has AUM of $1.79 billion and charges 0.10% in expense ratio. The fund carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: ETF Strategies to Play the Drop in New US COVID-19 Cases).

SPDR S&P 500 ETF Trust (SPY - Free Report)

Wall Street impressed investors in the first half of 2021, with major indices like the S&P 500 rising 14.4%, and the Nasdaq Composite and the Dow Jones Industrial Average, each climbing more than 12%. In fact, the S&P 500 has registered its best first half since 2019. Impressive first halves mostly make market participants more optimistic about the rest of the year.

Moving on, Tom Lee, managing partner and head of research at Fundstrat Global Advisors has increased the S&P 500 target estimate to 4,600 from 4,300 for 2021, according to a CNBC article.

This fund seeks to provide investment results that before expenses correspond generally to the price and the yield performance of the S&P 500 Index. Its AUM is $373.53 billion and the total expense ratio is 0.09%. The fund carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: Top ETF Stories of 1H of 2021).

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