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ETF Strategies to Tackle Volatile September

Published 09/10/2020, 08:00 AM
Updated 07/09/2023, 06:31 AM
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After exiting a superb August, investors have shifted focus to the ongoing market upheaval in September. This is especially true given its ill-famed seasonality in the equity market.

September is historically the worst month of the year for stocks. According to moneychimp.com, a consensus carried out from 1950 to 2019 has revealed that September ended up offering positive returns in 32 years and negative returns in 38 years, with an average return of negative 0.57%, which is worse than any month.

Two factors have started to bother this September. One is overvaluation in tech stocks (which resulted in profit booking) and the likelihood of the delayed rollout of coronavirus vaccine.The tech-heavy Nasdaq — the real coronavirus winner — got punished more compared with the other indexes in early September. Notably, big tech names ballooned this year amid growing demand for digitization amid social distancing.

Meanwhile, nine drug companies pledged this week that they will not submit vaccine candidates for FDA review until their safety and efficacy is shown in large clinical trials. AstraZeneca (NYSE:AZN), Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ), GlaxoSmithKline (NYSE:GSK), Merck, Novavax (NASDAQ:NVAX), BioNTech and Sanofi (NASDAQ:SNY) are some of the companies that have taken the pledge. The move is deemed to alleviate public fears of political pressure to have a vaccine before the November presidential election.

On the economic news front, the U.S. economy added 1.371 million jobs in August 2020, decreasing from a downwardly revised 1.734 million in the previous month, and slightly below market forecasts of 1.4 million. However, manufacturing activities look to be in decent shape as after clocking the highest reading since March 2019 in July, U.S. manufacturing activity accelerated to a nearly two-year high in August due to solid new orders (read: August U.S. Manufacturing Best in 2 Years: 5 Solid ETF Areas).

Apart from the vaccine issue, uncertainty related to the upcoming presidential election in the United States may keep the markets volatile. Against this backdrop, investors may find the below-mentioned ETF strategies beneficial.

Buy the Dip in Nasdaq

Vaccine makers pledge means further uncertainty in the health emergency the related economic recovery. This also ensures a prolonged period of social distancing norms and continued surge of digitization. No doubt, the Nasdaq had been a high-flying index this year, but the latest correction will help investors to dip their toe in the index and its tech components.

Nasdaq ETFs likeInvesco QQQ QQQ, First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) and Fidelity Nasdaq Composite Index Tracking Stock (ONEQ) can be bought on the correction. The fund QQQ has already hauled in $2.378.3 billion in assets in the first week of September.

Consumer Staples Should Stand Out

Staples is the non-cyclical space of the broader consumer sector, and should do well amid turbulent times. This makes Consumer Staples Select Sector SPDR Fund XLP a good pick if volatility flares up. The fund attracted about $384.9 million in assets from Sep 2 to Sep 8.

Go International

International markets, especially the Euro zone, have been putting up better show this September than Wall Street. Funds like Vanguard Total International Stock ETF (VXUS) and Vanguard FTSE Europe Index Fund ETF Shares (VGK) outperformed the S&P 500 in the past five days and in the one-month period. The dividend yields are also better in international ETFs as VXUS and VGK yield 2.45% and 2.34% annually than SPDR SP 500 ETF’s SPY 1.72%.

Coronavirus-Friendly ETFs to Continue to Rule

Coronavirus-focused investing is likely to rule ahead if there is a delay in vaccine. So, the products that deal with a COVID-19-induced lifestyle or stay-at-home trend should continue to see success. Such winning new ETFs could be Direxion Connected Consumer ETF CCON, Direxion Work From Home ETF WFH, ETFMG Treatments Testing and Advancements ETF (GERM), Pacer Biothreat Strategy ETF (VIRS), Telemedicine & Digital Health ETF EDOC andGlobal X Education ETF EDUT.

Low Volatility ETFs Likely to Sizzle

Low-volatility ETFs like iShares Edge MSCI Min Vol U.S.A. ETF USMV could be on the radar. If you are worried about a more volatile market, you can seek refuge in this segment.

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SPDR SP 500 ETF (SPY): ETF Research Reports

Consumer Staples Select Sector SPDR ETF (NYSE:XLP): ETF Research Reports

Invesco QQQ (QQQ): ETF Research Reports

iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports

Vanguard Total International Stock ETF (VXUS): ETF Research Reports

Direxion Work From Home ETF (WFH): ETF Research Reports

DIRXCONCT CONS (CCON): ETF Research Reports

Global X Education ETF (EDUT): ETF Research Reports

Global X Telemedicine Digital Health ETF (EDOC): ETF Research Reports

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