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Best ETF Investing Areas to Watch Out For in 2H21

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ETF investing is rapidly gaining popularity among investors. The inflow data for the first half of 2021 is speaking volumes about the growing craze of the investment category among market participants. According to ETF.com, first-half 2021 witnessed about $472.5 billion in inflows for U.S.-based ETFs, comparing favorably with ETF inflows of $507.4 billion in 2020.

Considering the impressive Wall Street performance so far in 2021, U.S. equities ETFs topped investors’ preferences. This ETF category witnessed a net gain of $219.2 billion and just more than $3.8 trillion in assets under management (per the ETF.com report).

Notably, the world’s largest economy is strongly controlling the coronavirus outbreak with accelerated coronavirus vaccine distribution. Markedly, the Fed’s continued support with easy monetary policies, fiscal stimulus support and reopening of non-essential business are strengthening hopes of rapid recovery from the coronavirus-led slump. Strengthening optimism, the U.S. economy added 850,000 jobs in June 2021 (after rising 559,000 in May), surpassing market expectations of a rise of 700,000. The jobs market represented the strongest employment growth in 10 months.

Furthermore, the latest U.S. consumer confidence data looks impressive as the metric has surged to its highest level in about 16 months in June. 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.

Meanwhile, inflation levels continue to rise in the United States. According to the Commerce Department, another major inflation indicator, core personal consumption expenditures (PCE) price index, used by the Federal Reserve to set policy, climbed 3.4% year over year in May, per a CNBC article. Notably, it registered the biggest gains since April 1992 and was on par with Wall Street estimates, per verified sources.

Also, according to the latest tally from CNN, the Delta variant has now been found in all 50 states and Washington, DC. Furthermore, this highly transmissible and aggressive variant accounted for 26.1% coronavirus cases in the United States as of Jun 29, per the Centers for Disease Control and Prevention data and as mentioned in a CNN report. Notably, the rapidly spreading variants have raised worries and put responsibility on the local and state officials to increase vaccination rates.

Against this backdrop, let’s glance through some ETF areas that make great investing choices for second-half 2021:

Dividend Aristocrat ETFs to Combat Delta Variant Threat

Dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds provide investors with dividend growth opportunities in comparison to other products in the space but might not necessarily have the highest yields.

‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turmoil. Notably, the inclination toward dividend investing has been rising due to easing monetary policy on the global front, and market uncertainty triggered by the pandemic and deceleration in global growth.

These products also form a strong portfolio, with a higher scope of capital appreciation as against simple dividend-paying stocks or those with high yields. As a result, these products deliver a nice combination of annual dividend growth and capital-appreciation opportunity and are mostly good for risk adverse long-term investors.

Against this backdrop, let’s take a look at some ETFs that investors can consider like Vanguard Dividend Appreciation ETF (VIG - Free Report) , SPDR S&P Dividend ETF (SDY - Free Report) , iShares Select Dividend ETF (DVY - Free Report) and ProShares S&P 500 Dividend Aristocrats ETF (NOBL) (read: Dividend Aristocrat ETFs That Deserve a Spot in Your Portfolio).

ETF Areas to Hedge Inflation

The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation. Moreover, rising inflation often lowers the value of the concerned currency. If the greenback remains subdued, gold will gain some glitter back. Also, analysts at the Morgan Stanley expect the yellow metal to maintain prices above $1,700 an ounce through the second half of the year, as mentioned in a Bloomberg article.

Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , SPDR Gold MiniShares Trust (GLDM - Free Report) and GraniteShares Gold Trust (BAR) are some of the popular ETFs (read: ETF Strategies to Tackle the Rising Inflation Levels).

TIPS ETFs offer robust real returns during inflationary periods unlike the unprotected peers in the fixed-income world. It not only provides protection from increasing prices but also safeguards income for the long term. While there are several options in the space to tap the mounting consumer prices, we highlighted the four popular ETFs that could be compelling investments, which are iShares TIPS Bond ETF (TIP - Free Report) , Schwab U.S. TIPS ETF (SCHP - Free Report) , Vanguard Short-Term Inflation-Protected Securities ETF (VTIP - Free Report) and iShares 0-5 Year TIPS Bond ETF (STIP) (read: Core Inflation at 29-Year High: 6 ETF Areas to Benefit).

Growth ETFs to Ride the US Market Optimism

The value trade remained popular for most of this year. However, investors have now rotated back into growth-oriented areas of the market in recent weeks on optimism surrounding the economic recovery. In fact, big tech companies have rebounded strongly after being hit by inflation fears and lofty valuation worries.

Going on, growth investing focuses on capital appreciation rather than annual income or dividend. It is a stock-buying strategy that aims to profit from companies, which grow at above-average rates compared to their industry or the market. Notably, growth funds tend to outperform during an uptrend.

Given the bullishness, investors seeking to capitalize on the strong trends should consider growth ETFs. However, it is worth noting that these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility when compared to value stocks. Here, we highlight a few growth ETFs like Invesco Dynamic Large Cap Growth ETF (PWB - Free Report) , SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) , iShares S&P 500 Growth ETF (IVW - Free Report) and Schwab U.S. Large-Cap Growth ETF (SCHG) that could be added to the portfolio (read: Bet on These 5 Top-Ranked ETFs to Boost Portfolio Returns).

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