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5 Top-Ranked ETFs to Buy in August as Markets May Fly High
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In July, the S&P 500 and the Nasdaq marked their fifth successive positive month. Impressively, the Dow recorded a 13-day advance last month, matching the index's longest streak of gains. It is against this backdrop that the doors have opened for investors in August.
According to moneychimp.com, a consensus carried out from 1950 to 2022 has revealed that August ended up offering positive returns in 43 years and negative returns in 30 years, with an average return of positive 0.85%, marking a moderate monthly performance.
More Rally in the Cards?
But the backdrop this time is saying something else. Equity markets are headed to new highs, says Wharton’s Jeremy Siegel, as quoted on CNBC. Wall Street veteran Morgan Stanley’s Michael Wilson, who is a staunch bear, also sees similarities between the current U.S. equity rally and the one in 2019, which delivered a 29% return to investors, as quoted on Yahoo Finance.
He believes that the current rally is policy-driven and late-cycle, similar to 2019. In the present year, the S&P 500 has gained 19%, which is comparable to the returns witnessed during the same period in 2019. Wilson indicates that the analogy to 2019 implies there may be further upside potential for the market at the index level, though valuation concerns do remain.
But then, policy easing in China, better-than economic growth in the U.S. and Euro zone, falling inflation and corporate resilience should support the rally in the market in August. Against this backdrop, below we highlight a few top-ranked ETFs that have a lower P/E than the Nasdaq-100 ETF’s (QQQ) P/E of 22.70X and have added more than 5% last month (which ensures upbeat momentum).
ETFs to Buy
SPDR S&P Transportation ETF (XTN - Free Report) – Zacks Rank #2 (Buy): P/E: 13.06X; Up 5.12% Past Month
The underlying S&P Transportation Select Industry Index represents the transportation segment of the S&P Total Market Index. The fund charges 35 bps and yields 0.68% annually.
A surprise swing exhibited by the U.S. economy in the second quarter of 2023, with consumers and businesses showing remarkable resilience despite elevated interest rates, is a positive for the sector. Solid economic growth results in higher activities.
ProShares Russell 2000 Dividend Growers ETF (SMDV - Free Report) – Zacks Rank #2: P/E: 17.34X; Up 5% Past Month
The underlying Russell 2000 Dividend Growth Index targets companies that are currently members of the Russell 2000 Index and have increased dividend payments each year for at least 10 years. It charges 40 bps in fees and yields 2.61% annually.
Small-cap stocks are closely tied to domestic economic growth. An upbeat U.S. economy is thus great for the fund.
SPDR S&P Homebuilders ETF (XHB - Free Report) – Zacks Rank #2: P/E: 12.20X; Up 5.2% Past Month
The SPDR S&P Homebuilders ETF charges 35 bps in fees. U.S. short-term rates are also nearing their peak. Robert Shiller, Yale University professor of economics and Case-Shiller Index co-founder, recently said that more than a decade of steady gains in U.S. home prices may be coming to an end, as quoted on CNBC. The housing ETFs are available at dirt-cheap valuation, which will support the further rally in these ETFs (read: Housing ETFs to Gain Despite a Dip in New Home Sales: Here's Why)
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report) – Zacks Rank #2: P/E: 18.47X; Up 5.9% Past Month
The underlying MSCI USA IMI Communication Services 25/50 Index represents the performance of the communication services sector in the U.S. equity market. The fund charges 8 bps in fees. Several communication giants like Meta and Alphabet’s upbeat earnings are a plus for the fund (read: Is a Volatile Market Awaiting Us? ETF Strategies to Follow).
Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) – Zacks Rank #2: P/E: 8.21X; Up 5.7% Past Month
The underlying S&P 500 Enhanced Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value score. The fund charges 13 bps in fees and yields 2.69% annually. If markets turn volatile for any reason, this ETF could bode well (read: Is a Volatile Market Awaiting Us? ETF Strategies to Follow).
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5 Top-Ranked ETFs to Buy in August as Markets May Fly High
In July, the S&P 500 and the Nasdaq marked their fifth successive positive month. Impressively, the Dow recorded a 13-day advance last month, matching the index's longest streak of gains. It is against this backdrop that the doors have opened for investors in August.
According to moneychimp.com, a consensus carried out from 1950 to 2022 has revealed that August ended up offering positive returns in 43 years and negative returns in 30 years, with an average return of positive 0.85%, marking a moderate monthly performance.
More Rally in the Cards?
But the backdrop this time is saying something else. Equity markets are headed to new highs, says Wharton’s Jeremy Siegel, as quoted on CNBC. Wall Street veteran Morgan Stanley’s Michael Wilson, who is a staunch bear, also sees similarities between the current U.S. equity rally and the one in 2019, which delivered a 29% return to investors, as quoted on Yahoo Finance.
He believes that the current rally is policy-driven and late-cycle, similar to 2019. In the present year, the S&P 500 has gained 19%, which is comparable to the returns witnessed during the same period in 2019. Wilson indicates that the analogy to 2019 implies there may be further upside potential for the market at the index level, though valuation concerns do remain.
But then, policy easing in China, better-than economic growth in the U.S. and Euro zone, falling inflation and corporate resilience should support the rally in the market in August. Against this backdrop, below we highlight a few top-ranked ETFs that have a lower P/E than the Nasdaq-100 ETF’s (QQQ) P/E of 22.70X and have added more than 5% last month (which ensures upbeat momentum).
ETFs to Buy
SPDR S&P Transportation ETF (XTN - Free Report) – Zacks Rank #2 (Buy): P/E: 13.06X; Up 5.12% Past Month
The underlying S&P Transportation Select Industry Index represents the transportation segment of the S&P Total Market Index. The fund charges 35 bps and yields 0.68% annually.
A surprise swing exhibited by the U.S. economy in the second quarter of 2023, with consumers and businesses showing remarkable resilience despite elevated interest rates, is a positive for the sector. Solid economic growth results in higher activities.
ProShares Russell 2000 Dividend Growers ETF (SMDV - Free Report) – Zacks Rank #2: P/E: 17.34X; Up 5% Past Month
The underlying Russell 2000 Dividend Growth Index targets companies that are currently members of the Russell 2000 Index and have increased dividend payments each year for at least 10 years. It charges 40 bps in fees and yields 2.61% annually.
Small-cap stocks are closely tied to domestic economic growth. An upbeat U.S. economy is thus great for the fund.
SPDR S&P Homebuilders ETF (XHB - Free Report) – Zacks Rank #2: P/E: 12.20X; Up 5.2% Past Month
The SPDR S&P Homebuilders ETF charges 35 bps in fees. U.S. short-term rates are also nearing their peak. Robert Shiller, Yale University professor of economics and Case-Shiller Index co-founder, recently said that more than a decade of steady gains in U.S. home prices may be coming to an end, as quoted on CNBC. The housing ETFs are available at dirt-cheap valuation, which will support the further rally in these ETFs (read: Housing ETFs to Gain Despite a Dip in New Home Sales: Here's Why)
Fidelity MSCI Communication Services Index ETF (FCOM - Free Report) – Zacks Rank #2: P/E: 18.47X; Up 5.9% Past Month
The underlying MSCI USA IMI Communication Services 25/50 Index represents the performance of the communication services sector in the U.S. equity market. The fund charges 8 bps in fees. Several communication giants like Meta and Alphabet’s upbeat earnings are a plus for the fund (read: Is a Volatile Market Awaiting Us? ETF Strategies to Follow).
Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) – Zacks Rank #2: P/E: 8.21X; Up 5.7% Past Month
The underlying S&P 500 Enhanced Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value score. The fund charges 13 bps in fees and yields 2.69% annually. If markets turn volatile for any reason, this ETF could bode well (read: Is a Volatile Market Awaiting Us? ETF Strategies to Follow).