Whith the markets remaining volatile, ETFs are worth considering as an investment.
While it’s too early to tell, investors across most segments seem cautiously optimistic that the worst is behind us.
Markets continued their hard and fast rally throughout July. While we may be in the mother of all bull traps, economic analysts and expert investors alike are slowly calling all clear.
But, even as the wide market rebounds, some sectors can’t catch a break. Value stocks don’t have the same appeal they once did compared to skyrocketing growth stocks and stiff fixed-income competition.
Likewise, sector-specific bad news rocked telecom this month, and banking has yet to emerge from its dark winter snooze.
However, these three ETFs are ready to rebound. Investors sitting on cash but feeling they missed the boat still have time to catch these waves before they break.
Schwab US Dividend Equity ETF (SCHD)
Expense ratio: 0.060%, or $6 annually on a $10,000 investment.
Schwab US Dividend Equity ETF (NYSEARCA:SCHD) remained flat since January, despite substantial market growth. SCHD lost 0.75% year-to-date, compared to the whopping 18% jump in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
SCHD focuses exclusively on companies meeting three strict criteria. They include ten consecutive years of dividends, a $500 million market capitalization, and sufficient liquidity.
These strict parameters ensure a portfolio comprised of some of the stablest and most reliable stocks on the market.
With a portfolio of corporate mainstays, investors may wonder why SCHD isn’t riding the current wave. As it’s often been the past decade, the answer is that tech firms are pulling the rest of the market higher.
Reliable value-based ETFs like SCHD are left in the lurch, but that’s likely to change soon.
The ETF currently boasts a 3.64% dividend yield, and astute management is careful to avoid overweighting industries or specific stocks to create greater downside protection than ETFs like SPY provide – if tech tanks, the entire index and associated ETF falls alongside those firms.
Today, SCHD has a 3.2 price-to-book ratio, 13.65 price-to-earnings ratio, and a Gold rating from Morningstar. These valuation measures and a history of reliable dividends built on a foundation of economic lynchpins mean SCHD is ready to rebound soon.
SPDR S&P 500 Telecom Sector (XTL)
Expense ratio: 0.350%, or $35 annually on a $10,000 investment.
However, much of the downward pressure came recently as reports of lead sheathing surfaced. Concerned with the prospect of future lawsuits and the sheer cost of replacing miles of underground network components, investors were quick to sell telecom and XTL suffered.
But the problem may not be as drastic as first thought, making XTL a perfect play to catch the telecom rebound. Firms like Verizon report that the issue is far less expansive than originally reported.
Unbiased industry experts like those at Morningstar consider the issue a non-issue and report that “nothing suggests that telecom firms failed to follow proper procedures” and that they don’t expect much liability (if any) to arise from further investigation.
Telecom isn’t going anywhere, and improved growth outlooks for some companies mean the XTL is a quality diversified option for those interested in jumping on a sector-wide rebound.
Vanguard Financial ETF (VFH)
Like telecom, finance and banking took a beating this year. Downward pressure from interest rate hikes and general economic unease combined to keep the Vanguard Financial ETF (NYSEARCA:VFH) flat since January. This ETF gives investors a range of financial industry exposure.
This internal diversification means that VFH is best poised to bounce back from an improved outlook across all financial subsectors.
Within consumer and investment banking, predictable interest rate movement over the next year helps maintain interest rate income momentum. For strictly consumer-facing firms, like American Express, broad economic improvement means consumer spending outlook is improving – which bodes well for their outlook in turn.
Ultimately, the financial sector took a hit based on very reasonable nervousness around what could have happened economically. But (knock on wood) it looks as though Powell’s soft landing prediction may come to fruition, which means investors can reap the rewards of cycling back into this finance ETF before it bounces back.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.