Here we cover a strategy for investors who cannot stomach the massive amount of volatility seen lately in the US stock markets due to rising bond rates . The tech or growth sector has been hit the worst in the last 2 weeks. The cyclical, consumer discretionary & banking stocks have been gaining instead. How do we navigate through all of this ? Let's first do a quick analysis of what has been going on with regards to : a) Higher Bond Interest Rates b) Covid-19 recovery c) The massive stimulus cheques being cashed-in the next couple of weeks .
Higher Bond rates have have spooked investors and increased fears of inflation although the Federal Reserve Bank (FED) chief has clearly indicated that is not a fear at this point of time given the unemployment numbers are high and the economy is still in recovery mode. Any inflationary indication will be temporary. Some bond rate stabilisation should be expected soon (although we cannot be certain how soon exactly) . This should see some rebound in the tech names especially the big tech names but don't expect any meteoric rise this time around.
Covid-19 recovery is going to take way longer then expected. As we saw last week the number of cases are rising again in 21 states in the US and in many parts of Europe. France & Poland ordered another partial lockdown last Friday. The vaccinations in the US are being carried out fairly efficiently and yet the average number of cases per day has not been declining lately. What more in Europe, the whole process has been slowed down with the temporary halt of AstraZeneca's vaccine due to suspected blood clots found in a few cases and delivery issues related to its vaccine in many parts of Europe. Therefore, a complete opening of the US or any other economy and resumption of travel is not going to happen anytime in the next 2 quarters. It will be in stages until the population of particular nation has achieved between 70% - 80% inoculation rate. This would mean your stay at home stocks like Zoom, Microsoft, Amazon, Apple and the likes may see a price recovery in the next couple of months. While some sectors may see a slow down in stock price hikes like airline travel and leisure and other cyclical stocks.
The stimulus cheques of USD1400.00 for adults and dependents are being received as you read this. 158 million American households will receive this along with child tax credits of up to USD3600.00 per child under 6 years of age and USD3000.00 per child above 6 years old. This is going to benefit many tax paying households. A significant portion of this stimulus will hit the stock markets in the coming weeks as it has done in the past that could drive a short term rally.
Consumer discretionary stocks could also see significant boost as a result of the stimulus spending.
Amidst all this, a strategy to diversify investments into various ETFs could proof to be the best option for low risk takers who want to benefit from the stimulus spending while hedging against volatility. Here are seven ETFs that we recommend across industries for you to consider. We have chosen not to cover the Canabis industry at this point as it has already seen a big jump in recent months in anticipation of easing of regulations during the Biden's Presidency but that may be still a long time away.
Consumer Discretionary Select Sector SPDR Fund (XLY)|NYSE|USD166.45|19th March Closing|Medium to Long Term Investment
This ETF is currently priced exactly the same as 30 days ago. It's up 3.5% YTD and may see a steady rise with the spending of the stimulus and with recovery of the economy once the pandemic is behind us . This ETF includes companies like Amazon, Starbucks, Home Depot, Tesla, Nike, General Motors and other consumer discretionary names.
Industrial Select Sector SPDR Fund (XLI)|NYSE|USD96.47|19th March Closing|Medium to Long Term Investment
Covering Transportation firms, Infrastructure Companies, Capital Goods Manufacturers with major holdings in Honeywell, Boeing, General Electric, Catepillar, Raytheon technologies and others. This ETF is up approximately 9% since beginning 2021 and will see further long term growth as Biden's administration is looking to make massive infrastructure spending in the US once the pandemic issue has been tackled.
Global X Cloud Computing ETF (CLOU)|NASDAQ|USD25.88|19th March Closing|Medium to Long Term Investment
This ETF covers tech companies that continue to benefit from cloud infrastructure adoption. The elf covers companies that generate at least 50% of their revenues from cloud-based services with an exception of a few large companies that have revenues over USD500million from Cloud related tech solutions or services. Netflix, Twillio, Zscaler, Shopify are a few that represent 4% or more of their holdings. This ETF has fallen over 7% this year although it has seen a 95% rise over the last 12 months. With the sell off among the tech sector stocks lately the USD24.00/25.00 mark looks like a good entry point. This ETF may have more volatility compared to the others we have recommended but it also allows us to enter lower levels and exit quicker. Although given the rapid adoption of tech and cloud base services in almost every industry this should be a long term hold.
Global X Lithium & Battery Tech ETF (LIT)|NYSE|USD59.52|19th March Closing |Medium to Long Term Investment
LIT provides exposure in the lithium commodity through mining companies around the globe and also lithium battery producers like Panasonic , Samsung, Tesla, etc . This ETF has seen its price fall approximately 11.5% over the last 4 weeks due to sell off in the EV sector. However, it's up over 200% since March 2020. The EV battery industry is forecasted to grow to USD35billion by 2023 according to reports by Global Newswire. Looking at the trends we are seeing in the electric vehicle sector; GM and Apple announcing their investment in electrical vehicle production, China EV market growing despite the pandemic in 2020 and Volkswagen announcing to build 6 new battery plants in Europe during their "Power Day" last week goes to show the kind of growth we are looking at years to come.
Technology Select Sector XPDR Fund (XLK)|NASDAQ|USD129.60|19th March Closing| Medium Term to Long Term Investment
If you prefer exposure to top tech companies then XLK which covers all the tech company stocks that you always dreamt to own is the pick for you. This is one ETF that will allow you to indirectly invest into Apple, Microsoft, Nvidia, Visa, Paypal, Salesforce, Mastercard, Qualcomm, Adobe & Oracle , all of which represents about 80% of the entire XLK's holdings. It will be interesting to watch how bond interest rates play out in the coming week and if there is anymore softening in the tech sector then it would be a good time to accumulate this ETF. It's down about 4% this year but up 75% over a 12 month period.
Invesco Dynamic Media Fund (PBS)|NYSE|USD57,23|19th March Closing| Medium to Long Term Investment
PBS focuses its investments in the US media industry, including social media with larger holdings in companies like Viacom, Facebook, Twitter, Google, Netflix, Zillow & Pinterest. This is a good ETF to own if you are planning to diversify your investment portfolio. It has been giving steady returns; over 24% YTD and 153% in the past 12 months.
IShares MSCI China ETF (MCHI)|NASDAQ|USD84.90|Medium to Long Term Investment
Lastly, the list would not be complete if we do not cover some investment exposure into the China market. There are numerous ETFs that cover the China market like the FXI but MCHI is one of the most diversified ones with major holdings in the financial industry and large cap stocks like Tencent, Alibaba, Meituan, JD Inc , China Construction Bank, NIO, Baidu and Xiaomi to name a few of its larger holdings. YTD it is up by 4.8% . Look to buy closer to support level of USD83.00 as it has come of its highs in the last 4 weeks.
