We have exited a Trump-heavy January that was yet another month of equity gains. By now, the investing cohort must have started to prepare for a correction in the market.
The final days of January gave such cues. U.S. stock indexes started February on a faltering note, as fears of a pick-up in inflation and rising bond yields raised volatility on Wall Street. With trade policy reforms under consideration and import tariffs being imposed, a trade war may be brewing up.
Moreover, the U.S. GDP growth data for Q4 came in lower than expected. The U.S. economy grew an annualized 2.6% on quarter in Q4, lower than 3.2% expansion in Q3 and shy of market expectations of 3.0%.
This may cause slight market gyrations to start February and must have stirred investors’ hunt for quality investments. In any case, February has been a downbeat month with average gain of 0.01% since 1950. The month saw positive returns in 39 years while returns were negative in 29 years.
Having said this, we would like to note that earnings improvement would give the market support from falling. Against this backdrop, let’s take a look at which ETFs could be beneficial for the month February.
SPDR Gold Shares (GLD - Free Report)
As the greenback has remained subdued, gold may get back its shine. Also, gold is known to be an inflation-protected asset. With rising inflationary expectations, gold has another reason to outperform.
Industrial Select Sector SPDR ETF (XLI - Free Report)
The sector enjoys the seasonal tailwind. U.S. factories grew more than forecast in January and near the quickest clip in more than 13 years, indicating that manufacturing sector is in the pink (read: Industrials ETFs in Focus on Q4 Earnings).
VanEck Vectors Morningstar Wide Moat ETF (MOAT - Free Report)
The fund follows an index which tracks the overall performance of the “attractively priced companies with sustainable competitive advantages.” As a result, this fund also calls for quality exposure and may safeguard investors’ portfolio from any kind of slide (read: An ETF Retirement Portfolio for 2018).
PowerShares KBW High Dividend Yield Financial ETF (KBWD - Free Report)
The investing background behind banks is shaping up. Be it tax reform, Trump’s proposals for deregulation or rising bond yields, all of these are expected to benefit the banking sector. Plus, the fund yields about 9.22% annually (as of Jan Feb 01, 2018), which is benchmark-beating (read: Rate Hike or Not, Dividend ETFs Are Star Investments).
iShares MSCI Emerging Markets ETF (EEM - Free Report)
Emerging markets (EM) look much better positioned at the current level. A weaker greenback, and commodity market recovery would benefit this segment (read: Trump's First Year in Office: 5 Must-See ETF Charts).
Reality Shares Divcon Dividend Defender ETF (DFND - Free Report)
The fund invests 75% of its portfolio in large-cap U.S. companies with the highest probability of raising their dividends within a year, based on their DIVCON dividend health scores. Also, the fund features a hedged (long/short) equity portfolio that may provide more stable returns than a long-only equity portfolio. In a volatile market which we may witness ahead, such an approach may prove profitable.
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