The novel coronavirus pandemic has been a game changer, triggering worldwide structural shifts in the way people live. Seasoned investors realize that such challenging times usually act as a long-term catalyst for innovation, creativity, as well as growth. Despite the initial panic as well as the recent selloff in many sectors, investor confidence has slowly but surely returned to broader markets. Therefore, I’d like to take a closer look at seven sectors that are still profiting and introduce exchange-traded funds (ETFs) that focus on “coronavirus stocks” that could be appropriate for long-term investors.
The first half of 2020 saw billions of global citizens shelter-in-place as part of lockdowns against the spread of the new virus. Initially, people felt they had to stock up on food and other essential household items. Shares in food manufacturers, grocery stores, fast-food restaurants and e-commerce companies have become winners. In the coming quarters, the demand for consumer staples is likely to stay constant, even if the U.S., or the global economy takes a pause.
As a result of these stay-at-home and work-from-home trends, consumers have increasingly been relying on services and industries that make this new way of life and work easier to maintain. This has meant most tech businesses, including communications, semiconductors, streaming, e-commerce, and esports have become strong coronavirus stocks.
While we all spend more time at home, many Americans have been looking to move, possibly to a larger home, away from big cities. U.S. housing data released earlier in August has been robust. Housing Starts, Building Permits and Existing Home Sales all beat expectations. Despite the economic uncertainties amid the novel coronavirus pandemic, the residential construction statistics released showed the health and resiliency of the housing sector.
Another development we have seen lately is that the U.S. dollar index has dropped to a multi-year low, slipping beneath 92 in early September. The Index measures the value of the greenback relative to a basket of six currencies — some of the most significant U.S. trading partners. A volatile dollar usually influences equity returns in emerging markets (EMs), as its value is regarded as a proxy for risk appetite and affects borrowing costs and commodity prices.
All else being equal, a weaker U.S. dollar is favorable for EM assets, since it decreases the debt servicing costs for international dollar borrowers. Equity markets stateside have outperformed many international markets over the past decade, but with a potentially lower dollar on the horizon, EMs may now stand to profit.
In this article, we’ll also discuss how the pandemic may be increasing investor interest on the environment as well as socially responsible investing. According to recent research led by Kenneth T. Gillingham of Yale University, “The Covid-19 pandemic has upended the world. Any time there is a major change in economic activity, there will be implications for the environment.”
It is hard to know how durable these trends are. However, there is no doubt that parts of this technological acceleration are likely to stay with us. The current virtuous circle is likely to continue in various other industries, too.
With all that information, here are seven spaces that are still profiting and seven ETFs to benefit from their ongoing strength:
- Global X Video Games & Esports ETF (NASDAQ:HERO)
- Invesco QQQ Trust (NASDAQ:QQQ)
- iShares Core MSCI Emerging Markets ETF (NYSE:IEMG)
- iShares Global Consumer Staples ETF (NYSE:KXI)
- SPDR S&P Homebuilders ETF (NYSE:XHB)
- SPDR S&P Semiconductor ETF (NYSE:XSD)
- Vanguard ESG US Stock Fund (NYSE:ESGV)
Let’s take a look at what makes these ETFs among the best ways to play coronavirus stocks.
ETFs That Hold Coronavirus Stocks: Global X Video Games & Esports ETF (HERO)
- 52-week range: $13.98-$27.75
- Current Dividend Yield: 0.1%
- Expense Ratio: 0.50%, or $50 annually per $10,000 invested
The first space to consider is the world of gaming and esports. Companies in this space have greatly benefited from the pandemic lockdown, as more people have been playing video games. The trend may continue in the last months of 2020, too, especially if people continue to stay-at-home and work from home.
The HERO ETF invests in a wide range of companies that publish and distribute video games. Several also own competitive esports leagues. The compound annual growth rate (CAGR) of the industry is well over 10%.
HERO’s top five holdings are Sea (NYSE:SE), Nvidia (NASDAQ:NVDA), Nintendo (OTCMKTS:NTDOY), Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA). These names reflect that fact that video gaming is no longer a hobby of a handful of people, but a major industry with continued growth potential. Augmented and virtual reality are also becoming important sub-sectors.
Year-to-date (YTD), HERO is up about 57%, hovering at the $25-level. Long-term investors may consider buying the dips.
Invesco QQQ Trust (QQQ)
- 52-week range: $164.93-$300.04
- Dividend Yield: 0.65%
- Expense Ratio: 0.20%
The QQQ ETF is one of the most traded ETFs in the U.S. on a daily basis. The fund tracks the NASDAQ 100 index. Thus it gives access to 100 of the largest U.S. and non-U.S.-based non-financial companies listed in the NASDAQ Stock Exchange.
The fund, referred to as “the triple Q’s” or simply “QQQ,” provides exposure to the current and evolving technological themes. QQQ may be an appropriate choice as a stay-at-home and work-from-home ETF because these businesses cover a broad range of industries, such as information technology, communications, semiconductors and consumer cyclicals.
So far in 2020, QQQ is up over 25%. Over the past decade, the fund’s annualized total returns also stand around 20% — more than double the returns of the S&P 500 index. Amid the increased volatility and profit-taking, a decline toward the $260-level would make the fund more attractive for the long-run.
iShares Core MSCI Emerging Markets ETF (IEMG)
- 52-week range: $35.66-55.45
- Dividend Yield: 3.53%
- Expense Ratio: 0.13%
The next theme comes from overseas, i.e., emerging markets. Most retail investors have U.S.-based companies in their portfolios — a concept known as the “home bias.” However, if you are ready to stray, then the iShares Core MSCI Emerging Markets ETF might be a fund to consider. IEMG invests in close to 2,500 large-, mid- and small-cap companies, covering most investable sectors. Its weighting currently favors Asian economies.
Although stock markets in emerging countries tend to be volatile, analysts agree that over the long-run, emerging market economies have strong growth prospects. For the year, IEMG is down 2.5%, but that metric does not include the robust dividend. Since early spring, the fund is up over 40%. If you have a two- to three- year time horizon, you may consider buying the EFF, especially if it falls below $50.
iShares Global Consumer Staples ETF (KXI)
- 52-week range: $41.93-$56.50
- Dividend Yield: 3.35%
- Expense Ratio: 0.46%
As part of a diversified portfolio, investors typically buy consumer staples stocks — companies that manufacture or sell a wide range of goods, from food and drinks, to household and personal hygiene products. The iShares Global Consumer Staples ETF allocates over half of its weight to U.S. consumer staples stocks. The rest come from ten other countries, including the U.K., Switzerland and Japan. Sub-sectors include Food, Beverage & Tobacco, Household & Personal Products, and Food & Staples Retailing.
Nestle (OTCMKTS:NSRGY), Procter & Gamble (NYSE:PG), Walmart (NYSE:WMT), PepsiCo (NASDAQ:PEP) and Coca-Cola (NYSE:KO) are its top five holdings. However, it also includes other familiar-to-most companies like Diageo (NYSE:DEO), L’Oreal (OTCMKTS:LRLCY) and Unilever (NYSE:UL).
YTD, KXI is about flat. However, that metric does not include the dividend yield. Like most other funds, since late March, it is also up over 25%. Those investors who believe the global growth story in consumer spending will continue in future quarters too may consider buying the fund around $50.
The SPDR S&P Homebuilders ETF (XHB)
- 52-week range: $23.95-$54.71
- Current Dividend Yield: 0.85%
- Expense ratio: 0.35%
Industrial economies have a few backbones, including the construction industry. When the pandemic hit out shores initially in March, shares of building and housing companies fell like a knife. But like most other sectors, the comeback has also been fast and impressive.
The SPDR S&P Homebuilders ETF tracks the S&P Homebuilders Select Industry index. Building Products, Homebuilding, and Home Improvement Retail are the most important sub-sectors. It is one of the most widely traded funds offering diversified exposure to the sector via large-, mid- and small-cap companies. Whirlpool (NYSE:WHR), DR Horton (NYSE:DHI) and PulteGroup (NYSE:PHM) are the top three names of the XHB.
Many homebuilders have been benefiting from the exodus from large cities into the suburbs or even smaller towns. Meanwhile, a large number of Americans stay home longer and spend money on home improvement projects, too.
So far in the year, XHB is up over 12%. Its trailing P/E and P/B stand at 16.30x and 2.58x, respectively. Long-term investors who believe the current rosy outlook will possibly continue may consider buying the fund, especially if it slides under $50.
SPDR S&P Semiconductor ETF (XSD)
- 52-week range: $68.95-$129.66
- Current Dividend Yield: 0.49%
- Expense ratio: 0.35%
So far in 2020, the widely followed Philadelphia Semiconductor Index is up about 15%. The industry has been hot not only in 2020, but also in the past decade. Along with technological advances, chip demand has also been growing.
The SPDR S&P Semiconductor ETF, which has 36 holdings, invests in a more balanced way than most other funds in the sector. Put another way, each company has around 3%-5% weighting. The top three names include SunPower (NASDAQ:SPWR), Nvidia and Marvell Technology (NASDAQ:MRVL).
Its trailing P/E and P/B ratios stand at 28.24x and 4.21x, respectively. Due to short-term profit-taking, a further pull back toward the $110-level is likely. If you believe semiconductor shares will have a continued role to play in various technological developments we’re witnessing, then you may want to research the sector further and buy the dips.
Vanguard ESG US Stock ETF (ESGV)
- 52-Week Range: $38.85 – 64.48
- Dividend Yield: 0.98%
- Expense Ratio: 0.12 %
Our final discussion centers on thematic investing around ethical decisions. A growing number of investors would like to make our world a better place while benefiting from increasing stock prices. For many people, ethical concerns are a pressing consideration. Terms like “environmental, social and governance (ESG)” and “socially responsible investing (SRI)” have well entered the mainstream.
If you, too, are looking for a fund that aligns with your values, you may want to do due diligence on the Vanguard ESG US Stock Fund. It has close to 1,500 holdings.
Managers screen this fund for certain ESG criteria, excluding companies in the following industries: adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling and nuclear power. Technology, Financials, Consumer Services and Healthcare top the sub-sectors. ESGV’s top three companies are Microsoft, Apple and Amazon.
Year-to-date, the fund is up over 7%. A further decline toward the $55-level would offer long-term investors better value.
On the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The author has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.