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Top ETF Areas for 2020

Sweta Jaiswal, FRM

Exchange traded funds have been basking in the glory during 2019 with their total assets under management amounting to nearly $4.3 trillion by November-end (per ETF.com data). Although the ongoing year has seen decelerating global economic growth, depleting export levels, relaxing monetary policies and most importantly, the twists and turns in the Sino-US trade war, the investment scenario for 2020 looks attractive. The IMF expects global growth at 3.4% next year compared with its forecast of 3% for 2019.

Certain positive developments raised investors’ optimism about a solution to the trade tussle. Meanwhile, the upbeat jobs and encouraging manufacturing updates are hinting at a healthier economy. The bullish U.S. homebuilders sentiment data for December also cheered investors. In fact, all three major U.S. bourses are scaling new highs. The broader market rally should not show any signs of slowing down, at least in early next year (read: ETF Strategies to Ride the Wall Street Bull Run).

Here are some ETF areas that can be good investor choices for 2020.

Emerging Market ETFs

Emerging markets are increasingly gaining popularity among investors. These markets are believed to have added wealth of about $11 trillion to investor portfolios over the past decade. In fact, a Bloomberg’s survey of 57 global investors, strategists and traders discussing their viewpoint for 2020 reported that developing-nation assets are expected to outperform their developed counterparts. Currently, total investment in emerging-market stocks and bonds surpasses $25 trillion, exceeding the combined economies of the United States and Germany.

The Sino-U.S. trade war is expected to be a major driver of emerging market investments  in 2020, followed by China’s growth projection. Although currently all major global banks are keeping interest rates steady, their easier monetary policies earlier lent  a huge support to the emerging markets. Investors can consider Vanguard FTSE Emerging Markets ETF VWO, iShares Core MSCI Emerging Markets ETF IEMG, iShares MSCI Emerging Markets ETF EEM and Schwab Emerging Markets Equity ETF SCHE (read: Emerging Market ETFs Beating the Broader Market: Here's How).

Alternative Energy ETFs

Alternative energy  includes any energy source that acts as a replacement to conventional and non-renewable fossil fuel. Going by an International Energy Agency (IEA) report, worldwide supplies of renewable electricity are estimated to expand 50% within five years. Moreover,  according to the IEA, renewable energy sources are anticipated to make up 30% of the world’s electricity by 2024 in comparison to the current 26%.

Demand for energy sources is predicted to rise over time. Per an IEA report, energy demand is envisioned to inch up 1% annually through 2040. It further added that  50% of the surplus energy demand will be met by renewables with solar power becoming the most favorable source by 2040. Against this backdrop, investors can take a glance at Invesco Solar ETF TAN, iShares Global Clean Energy ETF ICLN, Invesco Cleantech ETF PZD, First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN and ALPS Clean Energy ETF ACES (read: Top-Performing Alternative Energy ETFs YTD).

Biotech ETFs

Ramped-up mergers and acquisition (M&A) deals, growing AI dominance and favorable regulatory tidings continue to work in favor of the biotech market. The sector has been benefiting from a flurry of positive news including trial results and deal activities. M&As are leading the sector as sluggishness in mature products forced companies to explore buyouts to bolster their pipelines. Several other large-cap pharma and bigger biotech companies are inking collaboration deals with smaller ones to boost their pipeline. Thus, investors seeking to gain traction from the strengthening biotechnology market can take a look at iSharesNasdaq Biotechnology ETF IBB, SPDR S&P Biotech ETF XBI, First Trust Amex Biotechnology Index FBT, ARK Genomic Revolution Multi-Sector ETF (ARKG) and VanEck Vectors Biotech ETF BBH (read: A Guide to Biotech ETF Investing).

Metal ETF

Palladium grabbed investor attention on its consistent rally in the ongoing year. The auto-catalyst metal just touched an all-time high of $2000 per ounce. The recent shutdown of palladium mines due to power crisis in South Africa, the world’s second-largest palladium supplier, has been pushing up prices higher. Palladium has been seeing solid demand for industrial products. The metal is used for catalytic converters in gasoline-powered cars. Meanwhile, the markets have been grappling with a supply crunch of palladium for long.  Nonetheless, investors can check out Aberdeen Standard Physical Palladium Shares ETF PALL (read: Why Palladium ETF Has Soared in 2019).

Homebuilder ETFs

After three rate cuts in 2019, the Fed hinted at keeping interest rates intact in 2020 unless there is any major change in the economic outlook. It is widely believed that declining mortgage rates cushioned the housing sector as lower borrowing costs are making new houses more affordable. In fact, mortgage rates are currently at a low per historical standards. Per Freddie Mac, the average rate on a 30-year, fixed-rate mortgage was 3.73% as of Dec 12 and compares favorably with 4.94% in November 2018. Against the aforementioned backdrop, let’s take a look at some homebuilder ETFs like iShares U.S. Home Construction ETF ITB, SPDR S&P Homebuilders ETF XHB and Invesco Dynamic Building & Construction ETF PKB.

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SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
 
SPDR S&P Biotech ETF (XBI): ETF Research Reports
 
Vanguard FTSE Emerging Markets ETF (VWO): ETF Research Reports
 
iShares Nasdaq Biotechnology ETF (IBB): ETF Research Reports
 
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN): ETF Research Reports
 
Schwab Emerging Markets Equity ETF (SCHE): ETF Research Reports
 
VanEck Vectors Biotech ETF (BBH): ETF Research Reports
 
Aberdeen Standard Physical Palladium Shares ETF (PALL): ETF Research Reports
 
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
 
Invesco Dynamic Building & Construction ETF (PKB): ETF Research Reports
 
First Trust NYSE Arca Biotechnology Index Fund (FBT): ETF Research Reports
 
iShares Global Clean Energy ETF (ICLN): ETF Research Reports
 
Invesco Solar ETF (TAN): ETF Research Reports
 
iShares MSCI Emerging Markets ETF (EEM): ETF Research Reports
 
Invesco Cleantech ETF (PZD): ETF Research Reports
 
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