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Prescribing 5 ETFs for a Healthy Portfolio in Q2

Sanghamitra Saha
Colgate's (CL) investments in brands, higher pricing and strong innovation along with expansion in new markets and channels bode well. Also, the company is on track with its savings program.

Wall Street kicks off the second quarter of 2019 on an upbeat mood instigated by easing trade tensions. Though the S&P 500 Index logged its biggest first-quarter gain since 1998, there was quite a tumult in the market in March mainly on recessionary jitters in the United States, acute fear of slowdown in the Euro zone and Brexit drama.

This makes it easier for the global market to engage in a rally to start Q2 thanks to progress in trade talks, manufacturing revival in the United States and China and hopes of a soft Brexit. Against this backdrop, we highlight a few ETFs that are well-positioned at the current level and still have legs.

Vanguard Industrials Index Fund ETF Shares VIS

It seems the industrial sector is coming back to life slowly. Reflecting decent U.S. economic growth, the Institute for Supply Management’s Manufacturing PMI in the United States increased to 55.3 in March from February’s 54.2. The reading also surpassed market expectations of 54.5 (read: U.S. Manufacturing Sector Grows in March: ETF & Stock Picks).

China’s all-important and long-ailing manufacturing sector is also showing signs of improvement. The Caixin China General Manufacturing PMI rose to 50.8 in March 2019 from 49.9 in the prior month, beating market expectations of 50.1 (read: What Led China ETFs Outperform in Q1 & Have More Room to Run).

Along with the gradually improving global sentiments, a dovish Fed and receding trade tensions should push this already soaring Zacks Rank #1 (Strong Buy) ETF higher.

SPDR S&P Aerospace & Defense ETF XAR

The first-quarter 2019 earnings growth is expected to turn negative, per Earnings Trends issued on Apr 3, 2019. This would mark the first earnings decline since the second quarter of 2016. Margin pressure has acted as a headwind as revenues continue to grow.

Against this backdrop, very few sectors are projected to post positive earnings growth in Q1, among which Aerospace is expected to have the best growth rate of 4.5%. Also, President Donald Trump unveiled his third budget proposal for fiscal 2020, which begins on Oct 1, 2019. The record $4.75 trillion budget proposal seeks to bolster funding for defense and border walls. All these factors make XAR a good pick. The fund has a Zacks Rank #2 (Buy) (read: After a Lull, Will Defense-Related ETFs Surge Ahead?).

Xtrackers MSCI China A Inclusion Equity ETF ASHX

The underlying index of the fund – the MSCI China A Inclusion Index is designed to track the progressive partial inclusion of A shares in the MSCI Emerging Markets Index over time. Investors should note that MSCI is allowing investors greater access to the world’s second-largest stock market: China.

MSCI is quadrupling the weighting of domestically traded Chinese stocks in its global indexes from 5% to 20% starting this May. Exposure will be raised in three phases — 10% in May, 15% in August, and further to 20% in November (read: China A-Shares ETFs to Roar Higher on MSCI Move).

MSCI moves along with a host of reformative measures by the Chinese government as well as less trade tensions should give this Zacks Rank #2 fund a boost (read: What Led China ETFs Outperform in Q1 & Have More Room to Run).

iShares Russell 1000 Value ETF IWD

The fund measures the performance of the large-capitalization value sector of the U.S. equity market. The S&P 500 has just seen the best quarterly gain since 2009. After the astounding gains, thoughts of overvaluation concerns are justified. Also, global growth worries make it wise to hone in on value quotient when it comes to large-cap investing (the capitalization has considerable international exposure). Per an article published on seekingalpha, “value stocks are now at the deepest discount to growth since 2000,” ideally offering a good buying point.

Alerian MLP ETF AMLP

Oil prices have staged a rebound this year, coming off a steep sell-off late last year. This in turn resulted in a surge in related investments like MLP ETFs. The fund AMLP is up 15.8% this year, beating the S&P 500 and yielding as high as 7.88% currently. Along with the oil rally, a dovish Fed is also a beneficial factor for the space (read: MLP ETFs for Growth and Juicy Yields).

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