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5 Unbeatable ETF Strategies for 2nd Half

Sweta Killa

The U.S. stock market witnessed the strongest first-half performance in decades. The market overcame myriad woes including government shutdown, trade gyrations, global growth concerns, rising Middle East tensions, Brexit issues, and geopolitical tensions to record the spectacular surge.

The dual tailwinds of easing money policies and trade optimism are acting as the biggest catalysts for the spectacular rally this year. Additionally, the wave of mergers & acquisitions also adds to the strength (read: ETF Strategies to Follow If Fed Cuts Rate).

The bull extended its strong run to start the second half with the S&P 500 and Dow Jones hitting new all-time high, thanks to the trade truce between the United States and China. Oil price also spiked as the Organization of the Petroleum Exporting Countries (OPEC) has agreed to extend oil supply cuts until March 2020. Russia also joined Saudi Arabia to extend existing output cuts of 1.2 million barrels per day, or 1.2% of global demand, until December 2019 or March 2020.

However, the latest strong jobs report might keep the Fed from aggressively cutting interest rate. This speculation has again made investors jittery (read: S&P 500 Hits New High to Start 2H: Top-Ranked ETFs to Buy).

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

Make Trending Sector Your Friend

Technology has been at the heart of the rally this year amid rising trade tensions. Most of the gains came from FANGs and big tech stocks, which were driven by trade optimism.  Additionally, the rapid adoption of cutting-edge technology such as cloud computing, big data, IoT, wearables, VR headsets, drones, virtual reality, artificial intelligence and machine has been driving the rally. The deployment of 5G technology — the next wireless revolution — is creating further opportunities. The wave of mergers and acquisitions is also providing a further impetus to this space (read: Tech Stocks Log Seven-Year Best Spell: ETF Winners).

While the sector is crowded with a number of top-ranked ETFs, the most popular are Select Sector SPDR Technology ETF XLK, Vanguard Information Technology ETF VGT, iShares Dow Jones US Technology ETF IYW and First Trust Dow Jones Internet Index Fund FDN. All these have Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).

Focus on Rate-Sensitive Sectors

Rate-sensitive sectors such as utilities and real estate will get a big boost if the Fed cuts rate, given their higher sensitivity to interest rates. Additionally, global headwinds such as still unresolved trade tensions, Brexit, geopolitical tensions and global growth worries will continue to raise the appeal of the stocks in these sectors. This is because 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).

Add Growth to Your Portfolio

Given the bullish trends, growth investing deserves a look. This is especially true, as growth stocks refer to high-quality stocks that are likely to witness revenue and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices. As such, growth stocks tend to outperform during an uptrend. However, these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility when compared to value stocks.

The Zacks Ranked #1 ETFs like SPDR S&P 500 Growth ETF SPYG, Vanguard Mega Cap Growth ETF MGK, iShares Russell Top 200 Growth ETF IWY and iShares Morningstar Mid-Cap Growth ETF JKH are compelling picks (read: Growth ETFs Took Charge to Start 2H: Will This Continue?).

Focus on Dividends

The central banks across the globe are moving to easy monetary policies with some signaling interest rate cuts and some others planning to launch fresh stimulus to tackle global growth headwinds. This has sent Treasury yields down, leading to investors’ drive for higher income. As such, dividend products have gained popularity this year.

Additionally, dividend paying stocks offer the best of both these 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 (read: 5 Market-Beating Dividend ETFs of 1H).

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. VYM and SPYD have a Zacks ETF Rank #2, while HDV has a Zacks ETF Rank #1.

Go Global

Although the U.S. stock market has been skyrocketing, international investing looks tempting given the easy money policies across the globe and a weak dollar. As such, investors should go global with the ultra- popular funds — Vanguard Total World Stock ETF VT, Vanguard FTSE Developed Markets ETF VEA and iShares MSCI ACWI ETF ACWI. These have a Zacks ETF Rank #3.

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