With heightened volatility and uncertainty last year, U.S. stocks logged in their biggest annual losses since 2008. The S&P 500 and Dow Jones fell for the first time in three years while Nasdaq snapped a six-year winning streak. U.S.-China trade woes and slower global growth were the major culprits.
Rising interest rates in the United States, worries about increased regulation of the technology sector, political malaise in Europe and slowing growth in emerging and developed markets also resulted in the market gyrations. The slump sparked concerns over the nearly decade-long bull run. Most of these headwinds are likely to persist this year as well, suggesting that volatility will continue to show up.
The partial government shutdown entered the third week with lack of progress in passing a spending bill, wherein Trump demanded $5.6 billion funding for a border wall. The bill has been opposed by the Democrats. However, booming economic growth buoyed by an impressive labor market, higher wages, increasing consumer spending and rising consumer confidence will likely keep the momentum alive in the stock market. Notably, the American economy is on track this year to expand at the fastest pace in 13 years. Additionally, any signs of a trade deal between the United States and China will instill optimism into the broad markets.
Given this, we have highlighted a pack of ETFs that are poised to outperform in 2019 given the current trends:
iShares Core S&P Small-Cap ETF: Small-caps are expected to outperform this year as these are well insulated from international headwinds such as global growth worries and trade war. These pint-sized stocks are considered safe and better plays if any political issue or economic turmoil creeps into the picture. IJR, offering broad exposure to U.S. small-cap stocks, seems a compelling choice. It has AUM of $38.2 billion and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
Invesco NASDAQ Internet ETF: After being beaten down badly in 2018, FANG stocks are expected to make a strong comeback, given their cheap valuation and strong future prospects. As a result, investors should buy the dip in these stocks with PNQI. This fund offers exposure to the largest and most liquid U.S.-listed companies engaged in Internet-related businesses and accounts for 33.3% share in FANG stocks. It has amassed $491.9 million in its asset base and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
Energy Select Sector SPDR Fund: Though the energy sector might see more pain due to rising shale gas output and global slowdown, which would dent oil demand, it is poised for a rally given fresh output cuts by the OPEC and some non-OPEC countries as well as resumption of trade talks. Additionally, energy stocks with lower risk have become attractive bargain plays, compelling investors to grab them. With AUM of $13.7 billion, the fund has a Zacks ETF Rank #2 with a High risk outlook.
SPDR Gold Trust ETF: Gold regained its shine in December as global uncertainty spurred demand for the metal as a safe haven. The trend is likely to continue this year given the persistent headwinds and Fed’s dovish outlook. GLD is the largest and the most-popular gold ETF with AUM of $32.8 billion and has a Zacks ETF Rank #3 with a High risk outlook.
iShares Edge MSCI Min Vol USA ETF: Since the uncertainty over the trade deal and Fed policy is expected to continue this year, investors should focus on low volatility ETFs like USMV. These products have the potential to outpace the broader market in bearish conditions or in an uncertain environment while providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. USMV has AUM of $19.1 billion and a Zacks ETF Rank #3 with a Medium risk outlook.
First Trust Utilities AlphaDEX Fund: Amid uncertainty, utilities sector is expected to see continued surge. This is because it is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid market turmoil. Additionally, utilities offer solid dividend payouts and excellent capital appreciation over the longer term. FXU has accumulated $395.6 million in its asset base and has a Zacks ETF Rank #2 with a Medium risk outlook.
Schwab US REIT ET: Powell’s dovish outlook is expected to provide boost to real estate ETFs. In his latest comments, he said that the Fed would be flexible about future monetary policy move and it is in no hurry to raise interest rates. With AUM of $4.4 billion, SCHH has a Zacks ETF Rank #3 with a Medium risk outlook.
Vanguard Value ETF: Value ETFs seek to capitalize on inefficiencies in the market and have the potential to deliver higher returns with lower volatility compared with growth and blend counterparts. Additionally, value stocks are less susceptible to trending markets and their dividend payments serve as safety in times of market turbulence. VTV has AUM of $42.2 billion and a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
AI Powered Equity ETF: Artificial Intelligence (AI) has been emerging rapidly and will likely see massive growth in the coming years. According to ResearchAndMarkets, the global AI market accounted for $15.7 billion in 2017 and is expected witness CAGR of 38.8% to $300.3 billion by 2026, boosted by rising demand for intelligent virtual assistants. As a result, AIEQ appears to be a hot pick for 2019. Having AUM of $134.2 million, the fund provides exposure to the companies that potentially stand to benefit from increased adoption and utilization of robotics and AI, including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles.