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4 ETF Investing Styles for Q3

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We have stepped in the third quarter of 2020 along with the coronavirus scare. We have been bearing with the virus for the past two quarters and will have to continue living with it in the coming days. Global economies have tried the lockdown technique to combat the virus but have failed to contain it, to tell the truth. Economies started reopening from the middle of Q2 and the unlocking triggered even more virus cases globally.

At the start of Q3, the operating and investing backdrop looks mixed. The second wave of virus contagion has already hit the market and threatening the speed of recovery while several economic datapoints are coming in upbeat thanks to the reopening. So, investors have to focus on reopening trade keeping the virus-led volatility in mind.

In this light, below we highlight a few ETF investing style that would rule in the third quarter.

Vaccine Hopes to Boost Markets

As the novel coronavirus is not showing any sign of slowdown, the race for vaccine development has heated up to bring the world back to normal. Currently, “there are at least a hundred horses in the race, and we've got some leaders up front,” per Marc Poznansky, the director of the Vaccine and Immunotherapy Center at Massachusetts General Hospital.

The World Health Organization has recognised some 10 prime candidates for potential vaccines as these have entered clinical trials. Plus, 114 candidate vaccines are in preclinical evaluation stage. Latest news is that Pfizer’s (PFE - Free Report) coronavirus vaccine candidate showed progress in a trial phase, which charged up investors’ sentiments at start of Q3. However, it’s unlikely that a vaccine will be available before 2021.

The ETF winners should be Health Care Select Sector SPDR Fund (XLV - Free Report) and the newly launched fund ETFMG Bio ETF (GERM - Free Report) . Broder market growth ETFs like SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) is likely to be another winner on recovery hopes.

Pent-Up Demand to Drive Economic Datapoints

Though the fear of virus is rife in human mind, we can’t rule out pent-up demand and consumers’ deep desire to go back to a normal life. Thanks to this, U.S. retail sales growth in May was the best on record as the coronavirus-led lockdown eased.The month of May also reflected the largest one-month job gains. U.S. manufacturing activity bounced back in June, hitting its highest level in more than a year.

The ISM index of national factory activity jumped to a reading of 52.6 last month from 43.1 in May. Moreover, consumer confidence reading has also come in upbeat. Cyclical ETFs like Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) may gain from the trend.

Stay-at-Home to Boost Specific Corners of Business

The virus is forcing us to stay at home. So, anything related to home improvement, cook-at-home activity, more online shopping, watching esports, and last but not the least work-from-home would continue to prevail in the third quarter.

So, staples ETFs like Consumer Staples Select Sector SPDR Fund (XLP - Free Report) , O'Shares Global Internet Giants ETF (OGIG - Free Report) and WisdomTree Cloud Computing Fund (WCLD - Free Report) would continue to hog attention.

Blue-Chip Stocks to Rip Higher

Though economies are ailing, markets are likely to remain steady on cheap money and reopening trade. However, the climb in new cases of the coronavirus would also keep the broader market edgy. So, large-cap or blue-chip stocks seem well-placed as these are less volatile in nature and would likely to score better earnings amid subdued dollar environment. Invesco S&P 500 Top 50 ETF (XLG - Free Report) can thus be considered by investors.

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