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A Sneak Peek Into Popular ETF Investing Areas for Q1

Sweta Jaiswal, FRM
·6 min read

The Georgia Senate runoff elections have caused uncertainty in the market. The results of the elections are going to be very crucial given that a favorable outcome can lead Democrats to hold the majority in the chamber. Moreover, the aggravating coronavirus outbreak and efforts to control its spread can weigh on the economic recovery achieved so far.

Investors are also fearing that another round of business restrictions and lockdown measures might dim the prospects of faster economic growth on the back of the coronavirus vaccine rollout and introduction of a fresh fiscal stimulus. It is important to mention here that British Prime Minister Boris Johnson imposed a national shutdown on England to control the surge in coronavirus cases and combat the more transmissible variant of COVID-19. Furthermore, Thanksgiving, Christmas and New Year holidays worsened the condition in the United States, which is seeing increasing hospitalizations due to a spike in coronavirus cases.

However, we highlight certain bright spots in the ETF investing world that investors can focus on in first-quarter 2021:

Dividend Aristocrat ETFs

Although there are plenty of options in the dividend ETF world, ‘dividend aristocrats’ or ‘dividend growers’ are mostly deemed the smartest way to deal with the market turmoil. Notably, the inclination for dividend investing is rising owing to easing monetary policy on the global front, market uncertainty triggered by the pandemic and deceleration in global growth. Demand for these funds is mostly driven by their characteristic of being the major source of consistent income for investors when returns from the equity markets are uncertain.

Dividend aristocrats are the blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, the dividend aristocrat funds provide investors with dividend growth opportunities in comparison to other products in the space but may not necessarily have the highest yields.

Against this backdrop, let’s take a look at some ETFs that investors can consider Vanguard Dividend Appreciation ETF VIG, SPDR S&P Dividend ETF SDY, iShares Select Dividend ETF (DVY) and ProShares S&P 500 Dividend Aristocrats ETF (NOBL) (read: An ETF Retirement Portfolio for 2021).

AI & Robotics ETFs

Amid the coronavirus crisis, demand for online services increased, which in turn, led to the dominance of AI. Moving on, the coronavirus outbreak created a boom in the robotics market with robots being used for jobs, such as sanitizing hospitals, homes and workplaces along with monitoring, surveying, handling, and delivering food and medicines. The current environment seems favorable for the robotic markets in relation to government applications like health, security and defense. Notably, AI is supporting the fast evolution of the business landscape by opening up opportunities, driving revenues and enhancing efficiencies. The AI platform helps improving almost everything from advertising, healthcare, robotics, retail, video streaming to gaming and urban development.

Globally, the AI market is estimated to see a CAGR of 29%, rising from a worth of $42.8 billion in 2019 to $152.9 billion in 2023, according to an Analytics Insight article. Additionally, the global robotics market is expected see a CAGR of 25.38% during the 2020-2025 forecast period, per a ResearchAndMarkets.com report. Against this bullish backdrop, investors can consider Global X Robotics & Artificial Intelligence ETF BOTZ, iShares Robotics and Artificial Intelligence Multisector ETF IRBO and First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) as an investment option (read: Nvidia Q3 Earnings and Revenues Top: ETFs to Buy).

Emerging Market ETFs

Along with the coronavirus vaccine development and introduction of another round of stimulus, there are some factors that are presenting a very strong case for the emerging market ETFs. An impressive rally in this ETF area was observed on the back of the weak dollar against the basket of currencies that has been pulling in more capital into the emerging markets. Considered a good safe-haven asset, U.S. dollars are expected to struggle on the bourses due to a rise in risk-on sentiments on the back of the vaccine launch, a super-dovish Fed and the sanctioning of another round of fiscal stimulus.

Given the huge potential in the emerging markets, we highlighted some ETFs for gaining exposure to the same:iShares Core MSCI Emerging Markets ETF IEMG, iShares MSCI Emerging Markets ETF EEM, Schwab Emerging Markets Equity ETF (SCHE), SPDR Portfolio Emerging Markets ETF (SPEM) and WisdomTree Emerging Markets Equity Income Fund (DEM) (read: U.S. Dollar Sees First Drop Since 2017: ETFs & Stocks to Buy).

Internet ETFs

The pandemic added an impetus to the e-commerce industry as people continue to prefer staying indoors and shopping online for the essentials, especially food items. As a matter of fact, the rising work-from-home and online-shopping trends, increasing digital payments, growing video streaming and soaring video game sales steadily became the new normal.

With the new trends here to stay at least through the first half of 2021, Internet will continue to be a major requirement in our daily lives. Alongside the increased interest in online shopping, customers are resorting to digital payments to clear bills. Against this backdrop, First Trust Dow Jones Internet Index (FDN), ARK Next Generation Internet ETF (ARKW), Invesco NASDAQ Internet ETF PNQI and O’Shares Global Internet Giants ETF OGIG are a few internet ETFs that will continue to gain from increasing digitization (read: An ETF Area That's Worth Your Attention for 2021).

Small Cap ETFs

Small-cap stocks, as indicated by the Russell 2000 Index, have been outperforming the broader market and hitting new all-time highs for a while now. This upside is being largely led by those small-cap companies that are closely tied to the U.S. economy and are therefore well-positioned to fare well when the economy improves. The latest developments like the market availability of coronavirus vaccines and the government’s nod to another round of relief package drove the prospects of a rapid economic rebound. Therefore, investors can consider Schwab U.S. Small-Cap ETF SCHA, SPDR S&P 600 Small Cap ETF SLY, Vanguard S&P Small-Cap 600 ETF (VIOO) and John Hancock Multifactor Small Cap ETF (JHSC) (read: 5 Small-Cap ETFs Set to Explode on COVID-19 Vaccines).

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iShares MSCI Emerging Markets ETF (EEM): ETF Research Reports
 
Invesco NASDAQ Internet ETF (PNQI): ETF Research Reports
 
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
 
SPDR S&P Dividend ETF (SDY): ETF Research Reports
 
iShares Core MSCI Emerging Markets ETF (IEMG): ETF Research Reports
 
Global X Robotics & Artificial Intelligence ETF (BOTZ): ETF Research Reports
 
SPDR S&P 600 Small Cap ETF (SLY): ETF Research Reports
 
Schwab U.S. SmallCap ETF (SCHA): ETF Research Reports
 
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO): ETF Research Reports
 
OShares Global Internet Giants ETF (OGIG): ETF Research Reports
 
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