With the air turning crisp and the leaves starting to fall, it’s time to start thinking about the fourth quarter and how to position your portfolio until the end of the year. Considering all the uncertainty, you may want to start thinking about that right away.
Despite the continued rise of equities, economic data has been pretty mixed here at home. Everything from employment and housing data to measures of manufacturing to consumer confidence has been trending flat to down in recent weeks. That’s not exactly painting a rosy economic picture here at home. Neither is the global economy. Issues in Europe and Japan are starting to once again bubble-up to the surface.
Add in the upcoming tragedy of a presidential election, the Fed’s next pending rate hike meeting and lower estimated third-quarter earnings and we may be in for a bumpy ride.
But luckily, we can position our portfolios to mitigate any damage while potentially profit from the bright spots. And exchange-traded funds make that sector/country/asset rotation a breeze. There are a whole host of ETFs that allow investors to buckle down for the approaching winter.
With that in mind, here are seven of the best ETFs to buy for the fourth quarter.
Christmas ETFs to Buy: VanEck Vectors Gold Miners ETF (GDX)
Expenses: 0.52%, or $52 per $10,000 invested
Year-to-Date Gain: 95%
The first three-quarters of 2016 have been pretty kind to gold. The precious metal has managed to gain about 25% since the beginning of the year as uncertainty has crept back into the markets. And the fourth quarter could be just as big for the Market Vectors Gold Miners ETF (NYSEARCA:GDX).
Poor data continues to come in, and that’s helped keep gold prices above the $1,300 per ounce mark. That price point is seen as critical for the miners of the precious metal. All the miners have a price floor called “all-in sustaining costs,” and $1,300 per ounce is well above the major miners costs. That’s helping drive profitability at the recently struggling firms. Meanwhile, the added uncertainty and issues facing the world could send gold prices spiking during the fourth quarter. The miners will directly benefit from that.
When it comes to ETFs, GDX is really the only play to bet on the gold miners. The ETF tracks 50 of the largest gold producers from across the globe. This includes all the sectors heavyweights like Barrick Gold Corporation (USA) (NYSE:ABX), Newmont Mining Corp (NYSE:NEM) and Goldcorp Inc. (USA) (NYSE:GG). More importantly, GDX is up by 85% year to date on gold’s continued rise. That should spill over into the fourth quarter — making it one of the best ETFs to snag for the next three months.
Expenses for GDX run at just 0.52%, or $52 per $10,000 invested.
Christmas ETFs to Buy: The iShares MSCI USA Minimum Volatility ETF (USMV)
YTD Gain: 8.5%
Volatility has begun to rear its ugly head and we’ve gone back to the days of big swings in the market. Considering how dicey everything is, ratcheting down those large swings could be key. And ETFs can help you do that.
The iShares MSCI USA Minimum Volatility ETF (NYSEARCA:USMV) uses screens to kick out high-volatility stocks and capture the upside of the market. That also limits the downside as well as the “bounciness” associated with market movements. Currently, the $14.5 billion ETF holds 176 different stocks, including Paychex, Inc. (NASDAQ:PAYX) and Wal-Mart Stores, Inc. (NYSE:WMT).
USMV’s underlying index has done a good job of fighting volatility and downside risk. Back in 2008, the ETF managed to perform better and lose less than the broader S&P 500 Index. Meanwhile, during the subsequent up years, USMV managed to beat the market further. At the same time, USMV pays an S&P 500-beating dividend of 2%.
While the chance of recession is small, it is building. At just 0.15% in expenses, USMV is a cheap way to fight that potential and is a one of the best ETFs to buy for the fourth quarter of 2016.
Christmas ETFs to Buy: SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
YTD Gain: 25.4%
It’s no secret that oil prices have been in the dog house for a few years now. Oversupplies and muted demand have crippled both Brent and West Texas Intermediate benchmarked crude, but now could be the best time to bet on energy ETFs like the SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP) for a fourth-quarter rally.
Bankruptcies, drilling cuts and dropping production figures have reduced oil inventories over the past few months. That’s helped move prices out of the basement and back toward the $50 per barrel range. What’s more, OPEC is finally realizing that it can’t keep pumping at today’s low prices.
The cartel recently decided to step on the gas when it comes to production. With Saudi Arabia, Iran and others now pumping out less crude, oil prices have surged and will continue to rise during the next few months.
XOP is a prime way to play that surge. The ETF tracks a basket of energy producers. You’re getting the Exxon Mobil Corporation (NYSE:XOM) and Range Resources Corp. (NYSE:RRC) of the United States. These are the firms that will directly benefit from higher oil prices as they sell oil. That makes the ETF a great play on oil’s continued surge for the rest of 2016.
Expenses for XOP run at just 0.35%.
Christmas ETFs to Buy: Vanguard REIT ETF (VNQ)
YTD Gain: 10.1%
Real estate investment trust ETFs recently got a huge boost. That’s because REITs are now their own separate sector. Most indexing firms use a set of standards to classify what business a firm operates in. It’s called the Global Industry Classifications Standard sector designation and REITs were considered “financial stocks.” Not anymore — REITs are now “real estate.” What that means, is that many institutional managers that tied their performance to various indexes will now move plenty of money into REITs.
Considering how underweight they are already because REITs were hidden in financials, that move could be significant.
And that will play right into the Vanguard REIT Index Fund (NYSEARCA:VNQ). VNQ tracks the MSCI US REIT Index, which covers roughly two-thirds of the U.S. REIT market — including retail, office, residential apartment and industrial properties. VNQ holds a total of 150 high-class equity REITs. “Equity” refers to strictly physical buildings and not mortgage or loans tied to a building. As a result, the ETF should be one of the best ways to capture rising REIT interest and money.
As a Vanguard fund, VNQ charges a rock-bottom 0.12% in fees.
Christmas ETFs to Buy: PureFunds ISE Cyber Security ETF (HACK)
YTD Gain: 7.1%
The recent hacks of Yahoo! Inc. (NASDAQ:YHOO) and DropBox highlight that growing need for more cybersecurity spending. These high-profile hacks and other recent examples are helping push the PureFunds ISE Cyber Security ETF (NYSEARCA:HACK) to new 52-week highs. Highs that should continue during the fourth quarter.
HACK tracks a basket of software and hardware firms dedicated to stopping cyber threats and recovering lost data/information. It’s a fast growing industry and one that will see higher private sector and government spending in the years ahead. In the meantime, HACK’s basket of 35 stocks is enjoying the limelight of recent cyberattacks.
Moreover, M&A activity should continue to boost the firm’s holdings. While there are a few larger firms in the mix — such as Cisco Systems, Inc. (NASDAQ:CSCO) — the bulk are smaller. With many major tech firms — like CSCO — looking to beef-up their cybercrime offerings, HACK’s small caps should see premiums to their current values.
The combination of rising buyout activity and big-time spending on cybersecurity should make HACK one of the best ETFs for the next few months.
Christmas ETFs to Buy: iShares 1-3 Year Credit Bond ETF (CSJ)
YTD Gain: 1.15%
“Soar” isn’t exactly the word to use in order to describe the iShares Barclays 1-3 Year Credit Bond Fd (NYSEARCA:CSJ). But it still could be one of the best ETFs to buy for the fourth quarter.
CSJ holds investment grade government and corporate bonds with maturities of one to three years. It bets on the short end of the spectrum and that’s a good place to be for the next 90 days of the year.
For starters, the threat of rising rates. With a duration of less than two, CSJ is less sensitive to rising interest rates as it is able to “roll over” its holding faster than longer bonds. With Janet Yellen and Federal Reserve basically saying they are looking to raise rates before the end of the year, CSJ should be a great place to park some money.
Secondly, the market’s uncertainty makes holding some cash a good idea. However, cash is still yielding basically next to nothing. By moving out slightly on the yield curve/maturity spectrum, investors can score a better yield. At 1.3%, CSJ won’t make you rich, but you won’t loss out to inflation.
In the end, holding a bit of CSJ could be one of the smartest moves and best ETFs for conservative investors in the fourth quarter.
Christmas ETFs to Buy: WisdomTree India Earnings Fund (EPI)
YTD Gain: 7.25%
For investors looking for sheer growth, the best opportunity may lie outside the U.S. during the fourth quarter. In this case, we are talking about India and ETFs remain the best way to access the emerging market.
The Indian benchmark S&P BSE Sensex is up nearly 9% so far this year as investors have flooded beaten down emerging markets. India is particularly great as the reforms and major government overhauls under Prime Minister Narendra Modi have actually worked. The economy in India is thriving, inflation is down and stocks within the nation seem poised to keep on growing. And with the Fed keeping rates low for now, there’s no reason why Indian stocks shouldn’t keep up their torrid run.
At $1.47 billion, the WisdomTree India Earnings Fund (ETF) (NYSEARCA:EPI) is one of the largest and easiest ways to add Indian stocks to an investor’s portfolio. The fund holds 250 different Indian stocks — including giants like Tata Motors Limited (ADR) (NYSE:TTM) and Infosys Ltd ADR (NYSE:INFY). The kicker is that EPI is a smart-beta ETF and weights its holdings based on profits. That essentially kicks out firms that consistently fail to produce. It also has allowed EPI to produce as well, beating its market-cap weighted rivals since its inception.
With expenses of 0.84%, EPI isn’t dirt cheap. But it could well be worth it as it has the ability to add some real growth during the last chunk of 2016.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.