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5 ETF Ideas for a Winning Portfolio in the Second Half

·6 min read

The COVID-19 pandemic has been acting as a dampener in the stock market this year. Wall Street made an impressive comeback from the worst first quarter since the 2008 financial crisis, wrapping up its best quarterly performance in decades. The combination of unprecedented levels of fiscal and monetary stimulus, a surging technology sector, hopes of a coronavirus vaccine and easing of lockdown measures led to the rally.

Additionally, the latest bouts of data, which indicate that the U.S. economy has been recovering faster than expected from the pandemic, also drove stocks higher.

However, the second wave of coronavirus infections has been weighing on investors’ sentiment. This is especially true as the United States has recorded nearly 156,000 new coronavirus cases over the July Fourth Weekend, per the latest report. New cases are up 42% in Florida over the past week, 32% in Arizona, 40% in Montana, 37% in the Virgin Islands, 33% in Idaho, 30% in South Carolina, 29% in Texas, and up 21% in California over the same period, according to the Washington Post. The rolling seven-day average of new cases was 48,361 Saturday, up from 11,740 one week ago (read: ETF Areas for July as Second Wave of Coronavirus Hits Hard).

Given this, we have highlighted some investing ideas that could prove to be extremely beneficial for investors in the second half of 2020 in the current market environment:

Make Trending Sector Your Friend

The technology sector is booming and at the heart of the current market rally. It has shown strong resilience in one of the worst economic environments that the United States has ever seen. This is because the pandemic has driven the e-commerce boom and changed the consumer landscape to a purely digital one, thereby driving demand for cloud computing, gaming, esports and streaming services (read: Top Sector of 1H & Its Top ETFs).

While most of the ETFs are beneficiaries of this trend, WisdomTree Cloud Computing Fund WCLD, Wedbush ETFMG Video Game Tech ETF GAMR, O’Shares Global Internet Giants ETF OGIG and First Trust Dow Jones Internet Index Fund FDN could be solid picks. These funds have been soaring this year. WCLD and FDN have a Zacks ETF Rank #2 (Buy).

Bet on Rate-Sensitive Sectors

Rate-sensitive sectors such as utilities and real estate will get a big boost given that Fed Chair Jerome Powell has maintained a dovish stance and stated that there is no expectation of a rate hike through 2022. The central bank has pledged to continue pumping in stimulus until the economy is back on track. It slashed its interest rate to a range of 0% to 0.25% in mid-March in a bid to protect against the coronavirus pandemic's economic toll.

When interest rates remain low, these sectors, which are generally known for the income they generate, gain momentum. These often act as a safe haven in times of market turbulence and offer higher returns due to their outsized yields. The most-popular funds — Vanguard Real Estate ETF VNQ, Schwab US REIT ETF SCHH, Utilities Select Sector SPDR XLU, and Vanguard Utilities ETF VPU — seem to be excellent choices. All these funds have a Zacks ETF Rank #3 (Hold) (read: 4 Sector ETFs for July).

Prepare for Higher Volatility

As the resurgence in coronavirus infections in some parts of the United Sates after reopening sparked concerns about the world economy and its recovery from the pandemic, volatility will continue to rise. As such, investors should focus on low-volatility ETFs. These products have the potential to outpace the broader market in bearish conditions or in an uncertain environment while providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. ETFs like iShares Edge MSCI Min Vol USA ETF USMV and Invesco S&P 500 Low Volatility ETF SPLV could be compelling choices. These have a Zacks ETF Rank #2.

Focus on Quality

Quality stocks are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. These stocks thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. Some of the funds in this category, MSCI USA Quality Factor ETF QUAL, PowerShares S&P 500 High Quality ETF SPHQ and Barrons 400 ETF BFOR are worth a look (read: Here's Why Quality ETFs Make a Good Bet Now).

Emphasis on Dividends

The central banks across the globe have unveiled a number of easing fiscal and monetary policies, sending Treasury yields down. This has led to investors’ drive for higher income. The dividend paying stocks offer the best of both the world — safety in the form of payouts and stability in the form of mature companies, which are less volatile to the large swings in stock prices. The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

While there are several dividend ETFs, here are some of the top-ranked, high-yielding products — Vanguard High Dividend Yield ETF VYM, iShares Core High Dividend ETF HDV and SPDR Portfolio S&P 500 High Dividend ETF SPYD. The trio has a Zacks ETF Rank #2 (read: A Quick Guide to Dividend Aristocrat ETFs).

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Click to get this free report Vanguard Real Estate ETF (VNQ): ETF Research Reports Utilities Select Sector SPDR ETF (XLU): ETF Research Reports Vanguard Utilities ETF (VPU): ETF Research Reports iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports Wedbush ETFMG Video Game Tech ETF (GAMR): ETF Research Reports Schwab U.S. REIT ETF (SCHH): ETF Research Reports Invesco SP 500 Quality ETF (SPHQ): ETF Research Reports Invesco SP 500 Low Volatility ETF (SPLV): ETF Research Reports BARRONS400 ETF (BFOR): ETF Research Reports iShares Edge MSCI USA Quality Factor ETF (QUAL): ETF Research Reports iShares Core High Dividend ETF (HDV): ETF Research Reports First Trust Dow Jones Internet ETF (FDN): ETF Research Reports Vanguard High Dividend Yield ETF (VYM): ETF Research Reports SPDR Portfolio SP 500 High Dividend ETF (SPYD): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report