At the start of InvestorPlace.com’s best ETFs contest, all of the exchange-traded funds demonstrated significant promise as choices for 2020’s best-performing ETFs. However, the novel coronavirus quickly altered the progress of many of these funds.
At the end of the first quarter, not a single ETF in the contest was in the green, with many suffering double-digit losses. The new virus not only altered the core theses and bullish attitudes toward these funds, but it also made some seem far more hopeless than before.
However, as I predicted in my previous contest update, this “unpredictable turn” has proven profitable for some industries like those focused on futuristic technologies and digital communications and entertainment. This, in turn, has helped launch many of the ETFs back into the green.
That’s not to say that there’s no reason for continued concern. After all, there are increasing signals that a “second wave” of the coronavirus might hit the U.S.
If the virus strikes again, we should expect volatility and uncertainty similar to what we experienced earlier in the year. But even with this possible headwind whirling in the background, many of the funds in our contest focus on holdings that should prove successful despite the economic downturn and upcoming struggle for our society to adapt to the “new normal.”
Still, some of these funds will undoubtedly be left in the dust.
That’s one of the core risks of investing in ETFs, which wasn’t as apparent to some investors before the pandemic. Since these funds hold stocks based on a specific theme, the long-term viability of the fund relies on the continued success of that theme. With several core industries under threat, some ETFs are losing strength because they lack the diversity needed to overcome the downturn. None of this even factors in the potential impact of a renewed trade war between China and the U.S. as well as the inevitable drama of the upcoming U.S. presidential election.
Regardless, some of these picks will undoubtedly power through all of these headwinds and prove themselves to be among the best ETFs to buy this year. The picks for the contest include:
- Global X Cloud Computing ETF (NASDAQ:CLOU)
- Renaissance IPO ETF (NYSEARCA:IPO)
- SPDR FactSet Innovative Technology ETF (NYSEARCA:XITK)
- Invesco QQQ Trust (NASDAQ:QQQ)
- The Communication Services SPDR ETF (NYSEARCA:XLC)
- iShares Russell 2000 Growth ETF (NYSEARCA:IWO)
- Consumer Staples Select Sector Fund (NYSEARCA:XLP)
- AdvisorShares Vice ETF (NASDAQ:ACT)
- The ETFMG Alternative Harvest ETF (NYSEARCA:MJ)
- U.S. Global Jets ETF (NYSEARCA:JETS)
Let’s look at where each of InvestorPlace.com’s best ETFs for 2020 stand today, in ascending order of year-to-date performance through the end of June.
Best ETFs for 2020: Global X Cloud Computing ETF (CLOU)
Investor: Dana Blankenhorn
Expense Ratio: 0.68%, or $68 annually per $10,000 invested
Performance Through Q2: 36%
The CLOU ETF has remained at the No. 1 spot in the contest over the past two quarters. The reason for its continued success this year is no surprise — the new virus accelerated the interest in numerous cloud-based companies whose products have become immediately necessary as we adjust to the new normal, both personally and professionally.
Although Blankenhorn acknowledges the strength of CLOU in 2020, he still asserts that “[c]loud stocks are generally overvalued.” According to Blankenhorn, this makes many of CLOU’s holdings bubbles that are bound to burst. However, he also maintains that “until the bubble pops, you ride it.”
From a longer-term perspective, CLOU might prove risky; however, for the remainder of 2020, it’s likely to stay at the top and prove itself to be one of the best ETFs in 2020.
Renaissance IPO ETF (IPO)
Investor: Tom Taulli
Expense Ratio: 0.6%
Performance Through Q2: 30%
In his previous update on the IPO ETF, Taulli anticipated that the performance of the fund might slow down. While this might still be true in the second half of the year, through Q2 it has proven to be a winner at the No. 2 spot in the best ETFs contest.
IPO’s focus theme is exactly as its ticker implies. It’s a fund focused on companies that recently had an initial public offering. Since its holdings include coronavirus all-stars like Zoom Video (NASDAQ:ZM) and Slack Technologies (NYSE:WORK), IPO has managed to stay ahead of the competition.
Although Taulli claims that there might be more volatility in the months ahead, he still believes that “it is a good idea to have some exposure to public offerings, which often have next-generation companies with strong long-term growth potential.”
SPDR FactSet Innovative Technology ETF (XITK)
Investor: Bret Kenwell
Expense Ratio: 0.45%
Performance Through Q2: 28%
Kenwell’s play on innovative technologies — the XITK ETF — is right behind IPO in terms of performance through Q2. XITK features top holdings like Zoom Video, Twilio (NYSE:TWLO) and Shopify (NYSE:SHOP), all of which are leaders in innovation in their respective business endeavors.
Although it’s currently in the No. 3 spot, the fact that XITK focuses on innovative tech gives it a chance at the best ETFs throne in the latter half of 2020. This is especially true if IPO starts to lag with less exciting offerings in the summer and the overvaluation of CLOU’s holdings starts to become more apparent. While the success of these other themes may languish, the prospects of companies at the leading edge of technological advancements rarely fades as a promising investment thesis.
The proof of this is in the pudding, so to speak. As Kenwell points out, “this ETF performed about in-line with the broader market on the downside, but has rallied twice as hard on the upside. That’s ideal price performance for investors looking for alpha.”
Invesco QQQ Trust (QQQ)
Investor: Readers’ Choice
Expense Ratio: 0.2%
Performance Through Q2: 16%
The QQQ is one of those ETFs that’s about as close to a “sure thing” as you can get. While it might not dominate some of the other funds on this list, it has proven itself to be a worthy contender. It even won the first iteration of the best ETFs contest in 2018.
The reason behind QQQ’s general durability is its focus on tech companies that are not only at the forefront of innovation in hot spaces like the cloud and artificial intelligence, but also the fact that much of its holdings are fortified by brand-name recognition and have established themselves as long-lasting leaders in their fields. This is why it has been a favorite of InvestorPlace readers over the years.
Top holdings like Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA) and Netflix (NASDAQ:NFLX) have all evaded damage from the coronavirus and managed to thrive instead. Likewise, the unexpected success of companies in the video game space — namely, Electronic Arts (NASDAQ:EA) and Activision-Blizzard (NASDAQ:ATVI) — has further amplified the strength of QQQ so far this year.
With all of that in mind, I’d expect the QQQ to retain its position within the top five best ETFs in the contest and possibly gain a leadership position later down the road.
The Communication Services SPDR ETF (XLC)
Investor: Todd Shriber
Expense Ratio: 0.13%
Performance Through Q2: 0%
Although Shriber doesn’t expect XLC to overcome the current leaders in the contest, in his latest update he focuses on the fund’s strength in the face of the numerous coronavirus-related headwinds that stripped much of the market bare.
The Communication Services sector might not have proven itself to be the greatest performing sector in the first half of 2020, but there’s still plenty of reason to maintain optimism. After all, with communications leaders like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) within its top 10 holdings, XLC should retain a sense of stability amid whatever madness lies ahead.
Shriber clarifies this point further, explaining that “Alphabet and Facebook sport pristine balance sheets, sit on mounds of cash and are proving largely immune to political pressure.” Likewise, XLC includes video game companies like the aforementioned EA and Activision. Each of these companies has enjoyed a renewed sense of popularity among investors as gaming has become a go-to hobby amid social distancing efforts. While success in the gaming space might wane as the outlook on the new normal clarifies, the debut of new video game consoles (and new games during the holiday season) should help keep these holdings rolling higher.
iShares Russell 2000 Growth ETF (IWO)
Investor: Ian Bezek
Expense Ratio: 0.24%
Performance Through Q2: -4%
The remaining ETFs on this list have yet to make their way into the green. But that isn’t to say that all hope is completely lost for Ian Bezek’s pick, IWO.
Small businesses have had a particularly rough time dealing with the coronavirus. And since IWO focuses on small-cap stocks, it’s no wonder the fund hasn’t had a stellar performance.
However, while IWO has struggled so far, it has a chance to thrive where some other funds could falter. Specifically, “the potential for renewed U.S.-Chinese trade concerns adds an additional catalyst for IWO. Any sort of “buy American” sentiment resulting out of the coronavirus would also be a massive win for the IWO’s constituent companies, and place it among the best ETFs to buy in 2020.”
The main threat to IWO’s success this year is the potential for a second wave of the coronavirus. According to Bezek, “[a] renewed economic stall would hit small-cap growth stocks hard.” Only time will tell if the fund can overcome this threat and prove itself among the top ETFs for 2020.
Consumer Staples Select Sector Fund (XLP)
Investor: Kent Thune
Expense Ratio: 0.13%
Performance Through Q2: -7%
Although Kent Thune’s choice — the XLP ETF — hasn’t been able to contend with the competition this year, the thesis behind it is much less based on overwhelming success and more on defense. Consumer staples (the focus of XLP) are companies that produce products that consumers will ultimately purchase regardless of an economic downturn.
This includes companies like Walmart (NYSE:WMT), Costco (NASDAQ:COST) and Procter & Gamble (NYSE:PG). They provide all the essential day-to-day items like toiletries, food and clothing. Basically, if your outlook on the remainder of the year is bearish, XLP is an ideal pick. And even if the coronavirus situation improves, the fund should retain a sense of stability as its holdings aren’t going to disappear anytime soon, even in a recession.
That’s the beauty of XLP. It’s certainly not for everyone, but if you favor caution over glory and high amounts of risk, it could be one of the best ETFs for you.
AdvisorShares Vice ETF (ACT)
Investor: InvestorPlace Staff
Expense Ratio: 0.99%
Performance Through Q2: -10%
Vice stocks aren’t for everyone, but those who are interested in the darker side of things might find ACT alluring. After all, it’s one of the few funds out there that manages to focus on alcohol, tobacco and marijuana stocks altogether. Unfortunately, ACT hasn’t made it among the top contenders in 2020, but that was not truly the idea the InvestorPlace Staff had when choosing the ETF for the contest.
As InvestorPlace Web Editor Anna Jacoby points out, “I expected it to float around where [it] stands today on the leader board. In eighth place, it isn’t a winning pick, but it’s not a losing pick, either.” The choice for ACT was based less on whether it could win the contest and more on whether it had legitimate long-term durability that would make it worthwhile in the grand scheme of things.
Although it has suffered in 2020, the fact that ACT is actively managed gives it a bit of an edge to help ward off instability. Combine this aspect with the enduring success of booze stocks like Boston Beer Company (NYSE:SAM) amid world-wide quarantine initiatives and it should hold strong. While you might not expect it to win the contest this year, it’s still worth keeping an eye on as an alternative investment strategy with long-lasting appeal.
The ETFMG Alternative Harvest ETF (MJ)
Investor: Tim Biggam
Expense Ratio: 0.75%
Performance Through Q2: -25%
Over the past two years marijuana stocks went from being the hottest topic on Wall Street to a much-forgotten investment theme. But for those who have not forgotten about the potential behind marijuana, the MJ ETF is an ideal pick.
MJ hasn’t been a winner in 2020, and it wasn’t faring much better at the back-half of 2019. But Tim Biggam still has hope that pot stocks will make their way back into the green again eventually. According to Biggam, “marijuana companies are still seeing impressive growth rates. I expect MJ to be a solid out-performer in Q3 and it could still rank among the best ETFs this year.”
The exact reason behind his continued bullishness? In Biggam’s words, “[n]ow that Joe Biden appears to be widening his lead against Trump, I would expect a greater probability of federal legalization.” With federal legalization gaining further traction and impressive growth in the space still expected, there’s reason to be a believer in MJ.
The upcoming presidential election could make or break MJ’s success this year, but it’s definitely still worth keeping an eye on as the potential dark horse of the contest.
U.S. Global Jets ETF (JETS)
Investor: Vince Martin
Expense Ratio: 0.6%
Performance Through Q2: -47%
While many analysts have decided to retain a positive outlook on the long-term strength of their ETFs, Vince Martin has decided to take a far more bearish approach to JETS.
Unless you’ve been living under a rock the past few months, you’ve likely heard about the devastating effects of the coronavirus on the airline industry. Even Warren Buffett abandoned his holdings in the space a few months ago, on news that air travel as we know it might change forever. With more people hesitant to travel and less businesses requiring in-person interactions, it’s no surprise many have lost faith in the space.
But that’s not the only reason Martin has decided to be more critical of JETS. According to Martin, “airlines are already burning billions of dollars in cash. Short-term losses now look potentially higher. That has a real impact on fundamental fair value for airline stocks.” The airline industry was troubled before the coronavirus hit. The pandemic has merely thrown these problems into the spotlight along with all the other issues it brings.
For now, Martin no longer views it as one of the best ETFs to buy for 2020.
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.