5 Winning ETF Strategies for 2020

Wall Street registered the best performance since 2013 last year and continues its hot streak to start the New Year, overcoming the Middle East hurdle. Notably, the S&P 500 and Nasdaq reached new highs, gaining 0.9% and 0.3%, respectively, in the first week of 2020.

Positive trade developments and easing policy have been the biggest drivers for stocks. Notably, the phase-one trade deal between Washington and Beijing is expected to be signed next week. It will likely ease global growth concerns. Meanwhile, the Fed is expected to keep interest rates steady after three rate cuts last year.

Additionally, the U.S. economy is on a strong growth path with job additions at the fastest pace last year and unemployment dropping to the lowest level since 1969. The housing market is also clearly showing signs of a strong recovery with lower mortgage rates and slower home price growth acting as catalysts (read: 4 Big ETF Stories of 2019 That Will Continue in 2020).

Further, a combination of other factors like rise in oil prices, a weak dollar and rounds of upbeat economic data also bolstered the appetite for riskier assets. However, geopolitical tension, uncertainty over the second part of the trade deal and elections may bring volatility at regular intervals.

Given this, we have highlighted some investing ideas that could prove extremely beneficial for investors this year:

Make the Trending Sector Your Friend

Technology has been at the heart of the rally thanks to U.S.-China trade optimism. Most of the gains came from semiconductor stocks as chip stocks have a lot of exposure to China. They derive a large portion of their revenues from China since it is the world’s biggest chip market and have supply chains in the country. Robust demand for memory chips and other semiconductor products owing to the rapid adoption of cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies as well as the deployment of 5G (fifth-generation) technology are fueling huge growth in the space.

While most of the ETFs have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), iShares PHLX Semiconductor ETF SOXX and VanEck Vectors Semiconductor ETF SMH are the most popular (read: Semiconductor Outperforms in 2019: 5 Best ETFs & Stocks).

Bet on Rate-Sensitive Sectors

Rate-sensitive sectors such as utilities and real estate will benefit from lower interest rates, given their higher sensitivity to interest rates. Additionally, geopolitics and election uncertainty will continue to raise the appeal for 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 #2 (read: 10 Power-Packed ETFs to Buy for 2020).

Prepare for Volatility

Since trade uncertainty, election and geopolitical tension continue would raise volatility in the stock market, investors should focus on low-volatility ETFs. These products have the potential to outpace the broader market in bearish conditions or in an uncertain environment while providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. ETFs likelike iShares Edge MSCI Min Vol USA ETF USMV and Invesco S&P 500 Low Volatility ETF SPLV could be compelling choices. These have a Zacks ETF Rank #2.

Emphasis on Dividends

Though dividend-focused stocks do not offer much price appreciation in a rising stock market, they offer a steady stream of income along with the potential of capital gains. These are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

As such, dividend-focused ETFs offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. 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. The trio has a Zacks ETF Rank #2 (read: Fed to Not Hike Rates in 2020: ETF Areas to Shine).

Invest in Growth

Growth investing has been the most popular with Wall Street witnessing a remarkable rally. This is especially true as growth stocks are momentum plays and tend to outperform in a trending market (a market characterized by a prolonged uptrend). These 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. Among ETFs from this space, Vanguard Growth ETF VUG, Vanguard Mega Cap Growth ETF MGK and iShares Russell 1000 Growth ETF IWF are some picks that have a Zacks ETF Rank #1.

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Vanguard Growth ETF (VUG): ETF Research Reports
 
Vanguard Mega Cap Growth ETF (MGK): ETF Research Reports
 
VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
 
Utilities Select Sector SPDR Fund (XLU): ETF Research Reports
 
iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
 
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
 
iShares Core High Dividend ETF (HDV): ETF Research Reports
 
Schwab U.S. REIT ETF (SCHH): ETF Research Reports
 
iShares Russell 1000 Growth ETF (IWF): ETF Research Reports
 
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
 
SPDR Portfolio S&P 500 High Dividend ETF (SPYD): ETF Research Reports
 
Vanguard Real Estate ETF (VNQ): ETF Research Reports
 
iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
 
Vanguard Utilities ETF (VPU): ETF Research Reports
 
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