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6 ETFs for a Scary September

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As we exited a lukewarm August and stepped into the final month of Q3, the investing cohort must have shifted its focus to the likely market movement in September. This is especially true given the month’s cursed seasonality in the equity market.

It is historically the worst month of the year for stocks. According to moneychimp.com, a consensus carried out from 1950 to 2015 has revealed that September ended up offering positive returns in 29 years and negative returns in 37 years, with an average return of negative 0.68%, which is worse than any month.

Some of most threatening events hit us in September including the start of the Great Depression in 1929 or the fall of Lehman Brothers in 2008. Even this September bears the risk of considerable negative changes to the market in case the Fed hikes rates or gives some hawkish hints in its September 20-21 meeting or if OPEC fails to take some constructive decisions over output control in the September 27-28 informal meeting in Algeria (read: Oil ETFs Soar on Positive News: Will the Rally Last?).

Volatility is expected as key U.S. indices are hovering at highs and sparked off overvaluation concerns. Not only U.S. stocks, U.S. treasuries are also overvalued after a stellar run for the most part of this year on global growth issues and the resultant risk-off trade sentiments.

Yield on 10-year U.S. Treasuries hovered below 2% despite renewed talks over the Fed hike amid signs of a recovery in the U.S. economy at August end. On the other hand, downbeat U.S. manufacturing data for the month August released lately lessened chances of a September hike to start the month, promising to keep yields low in the near term. So, the yield opportunity is miniscule for U.S. Treasuries.

All these make it more important to pin point the ETFs that could safeguard investors from any steep and sudden market swing as well as earn some gains.

Principal EDGE Active Income ETF YLD

This fund has 41% exposure to high-yield securities, followed by 31% in equities, 11% in investment-grade securities and another 11% in cash. Going by fixed-income maturity, the product mainly targets the middle part (38%) of the yield curve. The fund yielded about 4.45% as of August 31, 2016. Such a diversified exposure may cushion investors against any kind of volatility.

PowerShares S&P SmallCap Information Technology Portfolio ETF PSCT

If we go by the seasonality indicated by equityclock.com, September is not a strong month for the technology sector. Still we are picking a tech fund given the recent momentum in the sector and a growing economy, albeit slowly. Such a cyclical sector does well even in a rising rate environment. The earnings picture of the sector is also sound (read: Do Not Fear Rate Hike; Play with Cyclical Sector ETFs).

SPDR S&P Semiconductor ETF (XSD - Free Report)

Investors can also take a look at a few semiconductor ETFs like XSD. Within the broader tech space, semiconductor, the value-centric traditional tech area, is taking an upper hand against a still-edgy investing backdrop. Higher demand from emerging technology applications like tablets and smartphones despite still-subdued PC shipments are tailwinds to the space (read: ETF Winners & Losers from Earnings Season).

iShares iBoxx $ Investment Grade Corporate Bond ETF LQD

Extremely low levels of Treasury yields may drive corporate bond demand. Investors should also note that U.S. corporates are sitting on healthy cash balance and the overall earnings picture is also slowly improving with recession showing an ebbing trend, as per the Earnings Trends report issued on August 24, 2016.

However, it is wiser to bet on investment-grade products like LQD as the performance of the junk-bond segment is closely tied to the seesawing performance of oil prices. LQD yields about 3.22% annually.

ProShares VIX Short-Term Futures VIXY

As September is known for poor equity returns, occasional volatility is likely to crack the whip. But given these products’ fickleness these suit investors with a short-term notion.

WisdomTree Europe Small-Cap Dividend ETF DFE

Brexit fears in June end now seem overstated as the recently released British economic data point to positive sentiments. Be it retail, manufacturing or unemployment, data points expressed optimism. Meanwhile, other Euro zone counties are also faring decently in terms of composite PMI, consumer prices and corporate health.

In such a scenario, it would be intriguing to pick small-cap high dividend Europe ETFs like DFE. Small-cap stocks better reflect the uptick in an economy. And with the benchmark U.S. treasury yield loitering under 2%, it would be intriguing to go for a high-yielding pick. The fund yields about 3.63% annually (read: Fed Hike Looks Likely, Time for High Dividend Europe ETFs?).

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