The novel coronavirus has put a steep discount on all of the exchange-traded funds in InvestorPlace‘s best ETFs contest. Broadly speaking, the virus is a black swan event that no one could have factored in beforehand. But despite the market downturn, it’s possible that many of these ETFs present even more interesting opportunities now.
Of course, the duration of the virus and its overall global impact are still to be determined. Right now, it seems like it might take at least a few months for things to get back on a track towards “normal” in the U.S. And whatever the new normal is, it likely won’t resemble the world we knew before the pandemic.
But assuming social distancing is effective and things do improve in the U.S. and elsewhere by the middle of the year, investors should expect many of these ETFs to make a comeback. While it’s too soon to say that they might all power back into the green, I am optimistic that some industries — and the ETFs that track them — will duck the brunt of the damage caused by current market turmoil.
With all of that said, here are InvestorPlace’s best ETFs for 2020, in ascending order of year-to-date performance through the end of March.
Best ETFs for 2020: Global X Cloud Computing ETF (CLOU)
Investor: Dana Blankenhorn
Expense Ratio: 0.68%
Performance Through Q1: -7%
So far, Dana Blankenhorn’s pick for the contest, the Global X Cloud Computing ETF (NASDAQ:CLOU), is leading the pack. Like the other ETFs in the contest, CLOU is in the red, but its losses are the least significant.
A huge part of its “success” this year is the fact that the theme its holdings encompass — cloud computing — is even more relevant and timely than before in light of the new virus.
As Blankenhorn notes:
“Such companies have ample pricing power, limited competition and innovative solutions to offer. The way to growth is always on the leading edge. So, it seems, is the way to safety in a panic.”
Current holdings of great significance include “big application providers … [such as] Netflix (NASDAQ:NFLX), Salesforce (NYSE:CRM) and Twilio (NYSE:TWLO).” But Blankenhorn also points out that the CLOU ETF isn’t limited to just apps and cloud-based services, as it also includes companies that help enable and secure the operations of cloud providers.
CLOU was a strong pick before the virus hit and now seems an even more promising play on the tech sector.
Invesco QQQ Trust (QQQ)
Investor: Readers’ Choice
Expense Ratio: 0.2%
Performance Through Q1: -10%
This year, our readers took a familiar bet on the Invesco QQQ Trust (NASDAQ:QQQ), which won the 2018 contest.
While the QQQ ETF has indeed suffered like all of the other ETFs on this list, it hasn’t taken as much damage as you might think. In fact, it’s currently at the No. 2 spot.
Much of this resilience is sourced in its holdings, which account for the 100 largest companies on the Nasdaq by market cap. Like it or not, small businesses are being hit the hardest amid all the virus-related turmoil (with the exception of a few key industries, of course).
While some of these titans are also struggling, many of them will undoubtedly survive, if not thrive during this crisis. For example, “[t]he QQQ’s inclusion of communications services stocks like Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Netflix (NASDAQ:NFLX) help ensure its viability amid growing social distancing initiatives.”
This ability to survive in difficult times might prove to be the QQQ’s greatest asset in making a solid comeback this year.
SPDR FactSet Innovative Technology ETF (XITK)
Investor: Bret Kenwell
Expense Ratio: 0.45%
Performance Through Q1: -12%
The staying power of many ETFs in light of the coronavirus pandemic can largely be attributed to tech stocks. As such, it should be no surprise that the SPDR FactSet Innovative Technology ETF (NYSEARCA:XITK) is one of the funds that managed to stave off the bulk of the damage many other ETFs have endured.
And this attribute — a primary focus on tech stocks — could be the reason why XITK ranks high among the best ETFs to buy this year. As InvestorPlace contributor Bret Kenwell points out, “to see such solid performance out of XITK gives me confidence that when COVID-19 blows over and the market gets back into ‘rally mode,’ this ETF is going to fly higher.”
Only time will tell if Kenwell turns out right about XITK’s performance later this year. But although things might seem glum right now, assuming social distancing and other initiatives put an end to the spread of the new virus, XITK should be one of the first funds on this list to benefit.
Consumer Staples Select Sector Fund (XLP)
Investor: Kent Thune
Expense Ratio: 0.13%
Performance Through Q1: -13%
When Kent Thune picked the Consumer Staples Select Sector Fund (NYSEARCA:XLP), he couldn’t have known about the impending crisis, or the economic fallout it would engender.
But after a long bull run in the market, Thune did feel like we were heading for more difficult times. And it’s during economic hardship that consumer staples thrive. After all, the sector includes companies that sell items that are necessities for day-to-day life, virus or no virus.
It just so happens that Thune’s defensive approach might end up being the best bet in 2020, as the coronavirus has certainly accelerated the arrival of a bear market. While the bear market might not endure as long as some seem to think, XLP’s holdings should hold strong no matter what. In Thune’s words:
“When information and data are short or absent, an investor must use their intuition, which comes from a combination of experience and educated guesses. In the short-term, no one knows where the market is headed. But it’s a reasonable bet that the U.S. is already in a recession, which will last months, not weeks.”
Hopefully the bear market Thune has anticipated doesn’t last long. But if you’re more cynical and want to play things safe, then XLP might be one of the best ETFs to buy this year.
Renaissance IPO ETF (IPO)
Investor: Tom Taulli
Expense Ratio: 0.6%
Performance Through Q1: -14%
So far the Renaissance IPO ETF (NYSEARCA:IPO) has managed to evade the serious damage dealt to some of the other funds in the contest by coronavirus. But to say it has been one of the safest plays this year would not be accurate.
Its design as a fund that emphasizes IPOs — initial public offerings — presents its own dose of potential volatility by default. In these less certain times, it would be foolish to assume that the risks surrounding the IPO ETF are no longer present. If anything, they’re even greater now.
But despite this inherent risk, many of IPO’s top holdings, such as new household name Zoom Video (NASDAQ:ZM), have benefited greatly amid the rising demand for social distancing. As such, ZM’s success in 2020 keeps IPO looking pretty.
But that’s not the only positive thing the fund has going for it this year. Tom Taulli thinks “[t]he strong relative performance for the IPO ETF is encouraging. It shows the importance of investing in next-generation companies as well as getting diversification across many holdings.”
Taulli expects things to stay a little quiet for IPO in the months ahead, but “quiet” isn’t bad at all when the broader markets are so chaotic.
The Communication Services ETF (XLC)
Investor: Todd Shriber
Expense Ratio: 0.13%
Performance Through Q1: -17%
While the Communication Services Select Sector SPDR’s (NYSEARCA:XLC) is like all other ETFs on this list in that it hasn’t manged to log positive performance through Q1, its focus on stocks within the communication services sector should help its chances for a strong comeback later this year.
According to Todd Shriber, “while some companies and industries are facing near zero revenue scenarios for the first quarter of this year, that’s not going to be the case for Alphabet and Facebook. Add up the cash positions of those companies and selloffs that are likely cases of too much too fast, and there’s a recipe for XLC to perk up later this year.”
Many of these funds have solid cases for a rebound, as their holdings in tech-based industries demonstrate immense value and endurance, even in these strange times. While it isn’t yet clear if the XLC ETF will be among the best ETFs this year, the case for a strong comeback is certainly valid.
AdvisorShares Vice ETF (ACT)
Investor: InvestorPlace Staff
Expense Ratio: 0.99%, or $99 annually per $10,000 invested
Performance Through Q1: -24%
InvestorPlace staff took a wild bet on the AdvisorShares Vice ETF (NASDAQ:ACT) this year.
Part of this idea came from the past hype surrounding marijuana stocks. While the bullish investment thesis behind marijuana has started to languish, the ACT ETF’s holdings aren’t limited to that space. It also includes other vices including alcohol and tobacco stocks. This might help ensure its placement as a top contender in the best ETFs contest for 2020:
“[i]ts emphasis on ‘recession-resistant’ areas makes it particularly promising in these presently dreary times. With 22.5% of its weight in alcohol stocks, it should benefit from the recent uptick in liquor sales.”
Note that some of its top holdings are also based in healthcare and have been approved to seek solutions to the coronavirus pandemic.
When we hit hard times, people usually don’t cease enjoying their vices, for better or worse. And that’s a big part of why the ACT ETF might just power back higher later this year.
iShares Russell 2000 Growth ETF (IWO)
Investor: Ian Bezek
Expense Ratio: 0.24%
Performance Through Q1: -26%
Ian Bezek acknowledges that his pick for the contest, the iShares Russell 2000 Growth ETF (NYSEARCA:IWO), has struggled greatly since the start of the year. As a play on small-cap stocks it’s no wonder the ETF has suffered significant losses.
At first glance it would seem that large-cap stocks have the advantage in a crisis like this. After all, it seems that people cling to household names more than ever in an economic crisis. On the other hand, the strength of smaller companies is much less established, and their survival therefore much less certain.
Even so, Bezek thinks that small businesses are actually at an advantage here:
“The coronavirus should accelerate the shift away from globalism. Now local supply chains are back in favor … We’re seeing people start to clamor for manufacturing and services to relocate back in the United States, even if it costs more. This should offer strong opportunities for many of the companies that make up the IWO ETF.”
As Bezek notes, the holdings within IWO rely much less on the global outlook and more so on the U.S. itself. If domestic initiatives to stave the damage from the virus are successful and Bezek’s thesis regarding diminishing globalization persists, then the small-cap fund could find success later this year.
The ETFMG Alternative Harvest ETF (MJ)
Investor: Tim Biggam
Expense Ratio: 0.75%
Performance Through Q1: -33%
At first glance, it seems like marijuana stocks are among the worst investments this year. The ETFMG Alternative Harvest ETF (NYSEARCA:MJ) has lost 33% through Q1. However, Tim Biggam argues that this weakness is temporary and the marijuana space is actually much stronger than people think.
“The recent red hot rebound in some of the bigger names may very well be the beginning of a meaningful move higher in MJ,” Biggam writes. “The coronavirus pandemic has made many states deem marijuana an essential item, putting it on par with staples such as groceries and pharmaceuticals.”
This newfound recognition might help promote the success of stronger marijuana companies like Canopy Growth (NYSE:CGC) and Cronos (NASDAQ:CRON). Although Biggam doesn’t expect every cannabis company to make it out of this crisis in one piece, he says the survivors will begin to thrive when the world starts to recover, and MJ will benefit as a result.
U.S. Global Jets ETF (JETS)
Investor: Vince Martin
Expense Ratio: 0.6%
Performance Through Q1: -53%
The U.S. Global Jets ETF (NYSEARCA:JETS) is at the lowest rung of the ladder with a loss of more than 50% through Q1. And that’s to be expected — after all, JETS is a fund that’s all about airliners, which have been among the hardest hit during the pandemic. Most people don’t have an essential reason to travel right now, and many are afraid to do so even if given the option. This has put significant pressure on airliners, which they will likely struggle to recover from.
While some investors might see this as a prime opportunity to tap into the space, Vince Martin warns against it. Specifically, he says regardless of the virus, “a recession was going to arrive at some point. That’s simply how economic cycles work. And while it looked like airlines had done a decent job managing their debt, looking closer that clearly wasn’t — and isn’t — the case.”
When you tack on the impact of the virus along with these preexisting issues, the case for JETS starts to look even more murky than before. Things might change as the year progresses, but for now, Martin suggests waiting on the sidelines before counting on a comeback to lift the fund back into the green.
Robert Waldo has been a web editor for InvestorPlace.com since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.