The ETF industry saw lots of volatility in the first quarter of this year thanks to the start of the QE taper, polar vortex in North America, deepening slowdown in China, return of deflationary worries in Euro zone and the geo-political issue in Russia which had a ripple effect in other countries. All these have goaded the “risk-off” investing theme in investors’ minds last quarter and should be felt in the second quarter as well.
If these were not enough, investors should note that the months of April and May are normally seasonally downbeat for the U.S. stock markets. After a mid-month tax deadline, investing in April normally loses some steam. On a separate note, April denotes the last month of the six-month long seasonally bull phase of the stock markets.
To add to this, we have also witnessed some sort of sector rotation lately, with some high-flying sectors like technology being hard hit, and defensive sectors like utility gaining strength. Meanwhile, the Fed’s Chair hinted at hiking short-term interest rate in mid 2015, leaving an impact on the bond market.
Thanks to all these worries, one needs to be hawk-eyed while choosing ETFs for a portfolio in Q2. Thus, identifying some ETF winners would be a prudent idea to make an investment decision.
Here we focus on three funds with favorable Zacks ETF Ranks and moderate risk outlook that you can capitalize on in order to enrich your portfolio:
iShares S&P Mid-Cap 400 Value ETF (NYSEARCA:IJJ)
While U.S. small caps had an astounding run last year, making the segment slightly overvalued, the large-cap segment is vulnerable to ongoing global shocks. Amid such a backdrop, investors should have a middle-of-the-road approach choosing mid-cap ETFs.
This often-ignored slice of capitalization offers the best of both worlds. Lesser vulnerability to international tremors compared to larger ones and lower risk profile than their small-cap counterparts make mid-cap ETFs a safe bet. The U.S. economy appears as one of the most stable and decently growing global regions this year.
Mid-cap ETFs should benefit from this improving U.S. economy. Also, investors should look for some value focus even in this slice of the market, given heightened global volatility. And to do this, IJJ could a good way to target the best of the segment.
The fund zeroes in on the S&P MidCap 400 Citigroup Value Index for exposure to about 292 domestic mid-cap names having diversified exposure to various sectors. The product is well spread out as it puts about 10.27% of its assets in the top 10 holdings with no stock accounting for more than 1.27% of the basket. Hollyfrontier (1.25%), SL Green Realty (1.20%) and Fidelity National (1.13%) occupy the top three positions.
However, the product is heavily dependent on financials, which make up for 29% of the total assets, while industrials, information technology and consumer discretionary round out the next three spots. IJJ is one of the most popular and liquid choices in the mid-cap value ETF list.
The fund has returned 3.60% year-to-date. It has a Zacks ETF Rank of 2 (Buy) with low risk outlook.
DB Agriculture Long ETN (NYSEARCA:AGF)
The year 2013 was not good for agricultural commodity investing thanks to easing supply concerns and favorable weather conditions which caused this fund to hurtle lower. However, the scenario has been turning around since the start of 2014 on supply crunch for some soft commodities and global recovery which led to enhanced consumption (read: 3 Commodity ETFs Surging on Russia Sanctions).
While we currently have some top-ranked Zacks ETFs in the agricultural space including Teucrium Corn ETF (CORN) based on one of the most important U.S. crops, corn, and some sugar ETFs, we prefer to bet on all top-performing agricultural-based commodities through a single investment, AGF.