As we quickly approach Halloween, markets are looking
downright terrifying. Many stocks are displaying gruesome
earnings, while some regions of the world, like Europe, are a
mere skeleton of their former selves, threatening to bring global
economic growth down with them.
If that wasn't enough, we still have election uncertainty and
the fiscal cliff to haunt the investing landscape, while many top
emerging markets are no safe haven either. In fact,
Chinese GDP growth grew at just 7.4%
for the third quarter, marking the slowest rate of growth since
Q1 2009, suggesting that investors may have to look elsewhere to
power their portfolios.
Yet even with this doom and gloom, there are several sector
segments and individual nations that still look promising as we
close out the year. An easy way to take a look at the market from
a sector perceptive and drill down into the top performing
industries is via the Zacks ETF Rank (read
Protect Your Portfolio with These Insurance
ETFs
).
This new ranking system provides investors with a
recommendation for the ETF in the context of our outlook for the
underlying industry, sector, style, or asset class. This
proprietary method also takes into account risk preferences of
investors in order to help identify ETFs that are most in line
with one's volatility tolerance.
The overall goal of the ranking process is to select the best
ETFs within each risk bucket, assigning ETFs one of five ranks
within each risk category. So, the Zacks ETF Rank reflects the
expected return of an ETF relative to other funds with a similar
focus and level of risk (read
Zacks Top Ranked Financial ETF: Star in Q3
Earnings
).
By using this approach, investors can avoid the ghastly ETFs
that are out in the market, and focus in on ones that look likely
to outperform over the next few months. For investors seeking to
apply this approach to their own investments, we have highlighted
three ETFs below that are scary good, and could haunt a portfolio
for years to come if one were to miss out on their immense
potential:
Vanguard Dividend Appreciation ETF (
VIG
)
Although many stocks have seen frightful performances as of
late, those that are dividend achievers have been more or less
immune from the market's tricks. That is because firms that
qualify for this status have been raising dividends, every year,
for at least the past 10 consecutive years.
This makes them bastions of stability in this uncertain world,
and also stocks that generally have less volatility than others
in the marketplace. VIG follows a benchmark of these securities,
holding just over 130 stocks in total in its basket (read
the Guide to 10 Great ETFs Yielding 7% or
More
).
Exposure is focused in on the U.S. market, with the vast
majority coming in the large cap segment. In terms of sectors,
consumer staples, industrials, and consumer discretionary take
the top three spots and combined account for just over 60% of
assets.
The annual dividend beats out the S&P 500 by about 20
basis points while the product is also less volatile than the
broad benchmark, making it ideal for investors looking for
dividend safety and price stability. Thanks to this and the
fund's ultra-low expense ratio along with its tight bid ask
spread, the fund receives a Zacks ETF Rank of 1 or 'Strong Buy'
with a Risk Rating of 'Low'.
PowerShares S&P SmallCap Health Care Portfolio (
PSCH
)
While none of the stocks in this health care ETF have a cure
for zombies, they could be the antidote to a sickly portfolio.
That is because small caps in the health care space often do not
suffer from the same patent cliff issues that their large cap
counterparts are facing.
This makes them prime takeover targets for those in the large
cap pharma space as these firms grow increasingly desperate for
new drugs, and revenues, to beef up their prices. While investors
can obviously play this trend from a single stock approach, a
broader ETF approach could be the way to go in order to spread
risk around in case any one firm runs into some trouble (read
Could The Small Cap Healthcare ETF Be a Great
Pick?
).
One easy way to do this is via PSCH, a diversified health care
ETF that holds just over 65 names and charges investors a low 29
basis points in fees. The product is well split between micro
caps and small caps, while it also offers a nice breakdown among
the various subsectors of the health care market, ensuring that
no one segment drives the risk/return of the fund.
Thanks to this diversification and the potential tailwinds for
the small cap health care sector, this ETF ranks favorably with
our system. The product currently has a Zacks ETF Rank of 1 or
'Strong Buy' with a Risk Rating of 'Medium', due to its
potentially higher volatility levels.
iShares MSCI Thailand Investable Market Index Fund (
THD
)
While people in Thailand might not observe Halloween, their
country's stock market performance has certainly been worth
celebrating this year. This solid return is even more
impressive considering the horrific flood to close out 2011, in
which the nation suffered through what some believe is one of the
costliest disasters in modern history.
Thailand quickly persevered over this tragedy and resumed its
strong growth, along with the rest of Southeast Asia, in much of
2012. The central bank now expects the country to grow at
roughly 5.7%
this year, but still cut rates in the most recent meeting as
'insurance' to protect the domestic recovery against global
shocks.
With this resiliency and proactive policies by the country's
central bank, it is easy to see why the Thai ETF has been a solid
performer this year, adding a solid 22% YTD. The fund also pays
out a pretty good 1.9% in 30-Day SEC yield terms, although fees
are at 59 basis points a year (read
Is The Thailand ETF Unstoppable?
).
From an exposure perspective, the ETF does concentrate itself
in large caps, holding 84 stocks in total. Taking a sector look,
financials, energy, and materials dominate, accounting for over
two-thirds of assets.
Still, in the trailing one year period, the fund has crushed
many other emerging markets, adding over 33% in the period,
beating out broad developing nation benchmarks by a pretty wide
margin in the time frame.
Given this history of outperformance and strong outlook in the
near term, it should be clear why THD also has a Zacks ETF Rank
of 1 or 'Strong Buy', making it another excellent choice for
investors seeking less frightful markets to finish out the
year.
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@Eric
Dutram
on Twitter
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PWRSH-SP SC HCP (PSCH): ETF Research Reports
PWRSH-SP SC HCP (PSCH): ETF Research Reports
ISHRS-MSCI THAI (THD): ETF Research Reports
ISHRS-MSCI THAI (THD): ETF Research Reports
VANGD-DIV APPRC (VIG): ETF Research Reports
VANGD-DIV APPRC (VIG): ETF Research Reports
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