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BofA Sees 0% Return Next Decade: 3 Sector ETFs to Win

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Bank of America is forecasting a flat return for the stock market over the next decade. With lofty valuations, much of the country’s corporate growth prospects are probably baked in the current price levels. However, BofA U.S. equity and quant strategist Savita Subramanian indicated that reinvesting dividends would be a winning approach to deal with the situation, as quoted on a Yahoo Finance article.

Subramanian said that the simple reinvesting of dividends could yield a total return “equivalent to the S&P 500 at 6,000,” assuming that payout growth stays near its long-term average. Subramanian also suggested betting on dividend growth stocks from the following three sectors to win in a flat stock market.

Below we highlight a few high-yielding sector ETFs from the three sectors.

Energy

Energy Select Sector SPDR Fund (XLE - Free Report) – Yield 3.77%

Oil prices have been surging over the past few weeks, driven mainly by supply disruptions and rising demand. Brent crude prices topped $85 per barrel last week, for the first time since late 2014. Goldman Sachs says that oil prices could be higher for much longer, per a CNBC article. “This is not a transient winter shock like it could be for gas. This is actually the beginning of a material repricing higher for oil,” according to Damien Courvalin of Goldman Sachs.

Goldman Sachs’ base case is for Brent to hit $90 per barrel by the end of the year. It’s been seven years since oil prices have been suffering. The latest rally appears to be a trend reversal, despite the uprise in clean energy. Oil drilling activity hasn’t improved while demand is growing. All forms of fossil fuel have have been rising lately starting from coal, oil and natural gas (read: Why Oil & Gas ETFs are Surging Again).

Financials

Invesco KBW High Dividend Yield Financial ETF (KBWD - Free Report) – Yield 7.35%

Financial ETFs rebounded this year after a prolonged period of volatility and are currently trading at a 52-week high. The vaccine drive, the return of global growth and the resultant inflationary pressure, rising oil demand and consumers’ savings on fiscal and monetary stimulus have made the space a winner lately. As for shareholder value maximization, Goldman Sachs, Morgan Stanley and JPMorgan Chase recently increased their dividend payout.

Materials

iShares MSCI Global Metals & Mining Producers ETF (PICK - Free Report) – Yield 2.62%

In its latest World Economic Outlook being released lately, the IMF predicts global growth of 5.9% this year compared with its projection of 6% in July. Materials have established resilience in times of high inflation.  If consumer prices continue to register an uptrend over the next decade, materials stocks should outperform.