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5 ETFs That Make Attractive Investment Choices in Q4

Sweta Jaiswal, FRM
·7 mins read

The fourth quarter of 2020 will be witnessing some key events that are largely going to shape the world of equity investment. Data from the late-stage coronavirus vaccine trials, Nov 3 elections and major retail events largely associated with the holiday season like Cyber Monday, Black Friday and Christmas are some of the events, which investors will keep an eye on.

Trump’s improving health condition and return to the White house from the Walter Reed National Military Medical Center have helped calm investors to a certain extent. Following the first of the three presidential debates in Cleveland, things seem to be in favor of Mr. Joe Biden. According to data from Smarkets, Biden’s chances of winning are now pegged at 62%, while odds in favor of Trump are at 38%, per a Yahoo Finance article. Going on, data from U.K.-based Oddschecker reflects that Biden’s chances of winning have risen to more than 58% while Trump’s have declined to around 42%, according to the same Yahoo Finance article.

Analysts are expecting to witness a better earnings trend going forward as large parts of the U.S. economy have started reopening from the pandemic-driven lockdown. Furthermore, projections for U.S. corporate earnings for third quarter and full-year 2020 are rising since early July, indicating increasing corporate profits. The super-dovish Fed is also a long-term positive for the stock market.

Keeping the current scenario in mind, let’s discuss ETFs that can be a good addition to investors portfolio for enhancing returns in the fourth quarter of 2020:

VanEck Vectors Video Gaming and eSports ETF ESPO

The video game industry is seeing a boom as people are increasingly playing video games for some in-house entertainment, while maintaining social distancing amid the pandemic. Moreover, the boom in the video gaming space may remain in the post-pandemic era as well. Going by new data from The NPD Group, the video game industry, including packaged media, digital, consoles and accessories, saw strong sales in August with people spending a total of around $3.33 billion. Notably, the figure is also up 37% year over year from $2.43 billion. In fact, August was the fifth consecutive month of an impressive rise in sales compared to the year-ago period.

The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Video Gaming and eSports Index, which is intended to track the overall performance of companies involved in video game development, esports, and related hardware and software. It holds 25 stocks in its basket. Top gaming companies like Nintendo and Activision Blizzard (ATVI) have spots in the first ten holdings. With AUM of $519.3 million, the fund charges 55 basis points (bps) in expense ratio (read: ETF Areas That Remained Strong in the First 9 Months of 2020).

iShares Nasdaq Biotechnology ETF IBB

The biotechnology sector has kept its promise of returns so far. The S&P Biotechnology Select Industry Index has returned 15.7% in the year-to-date period in comparison to the S&P 500’s 3.6% rise. From vaccine-related positive news to progress in the development of cell therapies for addressing coronavirus, all kept the sector surging. Notably, the race to introduce vaccine and treatment of coronavirus is opening up opportunities, making the biotech sector a prospective space for investments. Recently, J&J became the fourth company to join the vaccine developers already in the Phase 3 clinical trials. Increasing mergers and acquisition (M&A) deals continue to work in favor of the biotech market.

This fund seeks to provide exposure to U.S. biotechnology and pharmaceutical stocks and tracks the Nasdaq Biotechnology Index. The fund has an AUM of $8.95 billion, with an expense ratio of 0.46%. It sports a Zacks ETF Rank #2 (Buy), with a High-risk outlook(read: Biotech ETFs to Gain on Trump's COVID-19 Treatment Protocol).

iShares Global Clean Energy ETF ICLN

The space has been hitting the headlines these days for several reasons. Increasingly, big corporations are making or promising investments in pursuit of achieving the most-coveted carbon neutral status. Also, the green energy space has been a hot topic of discussion in the ongoing U.S. election campaign. Democratic presidential candidate Biden has been strongly campaigning for his clean energy and infrastructural plans. He aims to pump $2 trillion into green energy for over four years to build solar panels and charging stations, among others. Notably, following the first of the three presidential debates, the wind seems to be flowing in favor of Biden.

The fund seeks to track the investment results of an index composed of global equities in the clean energy sector. The fund’s AUM is $1.50 billion and the expense ratio is 0.46%. The fund has a Medium-risk outlook (read: ETF Areas to Ride the Thematic Investing Trend in Q4).

Amplify Online Retail ETF IBUY

Strikingly, even as the rebooting of the U.S. economy happens in phases and social-distancing restrictions are being eased, people are increasingly opting for contactless operations. In fact, U.S. online sales rose 42% year over year in August, according to the latest Adobe Analytics data. The rise was however at a slower pace than July when online sales soared 55% year over year, per the Adobe Analytics data. Since March, Adobe attributes the pandemic to an extra $107 billion spent online. Also, according to Salesforce, digital revenues are expected at $221 billion whereas total holiday sales are estimated to hit $730 billion in the November-December period, as reported in a Digital Commerce 360 article.

The fund provides a cost-efficient way for investors to own a basket of companies with significant revenues from online or virtual retail sales. With AUM of $891.5 million, the fund has an expense ratio of 65 bps (read: Online Sales to Rise During US Holiday Season: 4 ETF Picks).

Vanguard Information Technology ETF VGT

The technology sector has remained relatively strong amid the coronavirus crisis with big-tech companies showing resilience to the pandemic, which in turn, significantly supported the market momentum this year. Highlighting the instrumental role that technology is playing with respect to helping people maintain social-distancing norms, The NPD Group’s Future of Tech report forecasts technology sales to see a historic growth rate of 18% year over year in comparison to the year-ago period’s 4% rise in fourth-quarter 2020. Also, e-commerce is expected to represent more than 60% of technology sales in the same period.

The fund seeks to track the performance of the MSCI US Investable Market Information Technology 25/50 Index. It has an AUM of $36.27 billion and charges investors 10 bps in annual fees. The fund sports a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook (read: Winning ETF Areas After First Presidential Debate).

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iShares Nasdaq Biotechnology ETF (IBB): ETF Research Reports
 
iShares Global Clean Energy ETF (ICLN): ETF Research Reports
 
Amplify Online Retail ETF (IBUY): ETF Research Reports
 
Vanguard Information Technology ETF (VGT): ETF Research Reports
 
VanEck Vectors Video Gaming and eSports ETF (ESPO): ETF Research Reports
 
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