The summer season months are usually the time of yr that sees decrease buying and selling volumes and decrease volatility. With folks centered extra on getting out to benefit from the heat climate (particularly this yr after lacking out on most of final yr because of the pandemic), the fairness markets are likely to get pleasure from a relative interval of calm earlier than heading into the doubtless extra unstable autumn months.
Low volatility and low quantity environments are usually favorable for threat asset costs typically shifting up. Buyers have persistently been exhibiting an inclination to save lots of and make investments their authorities stimulus money as an alternative of spending, which provides one other layer of assist for a market that has proven a bullish tendency.
That makes for favorable situations for including threat to your portfolio. Whereas issues may nonetheless flip south if one thing sudden happens, the summer season months are usually time to get pleasure from a sexy threat/reward ratio for shares.
With that in thoughts, in the event you’re seeking to pivot your portfolio in a single path or one other for a possible short-term pop, I might lean in the direction of extra aggressive progress choices through the month of Might. Listed here are a handful of ETFs that might reap the benefits of this pattern.
iShares Russell 2000 Progress ETF (IWO)
Including a riskier excessive reward play means selecting small-caps over large-caps and progress over worth. A part of how properly this fund may carry out will depend upon whether or not buyers favor progress shares over cyclical shares, which they’ve over the previous couple weeks.
The Might jobs report might have fallen proper within the candy spot for progress outperformance. A robust jobs quantity may have sparked a cyclical rally because the markets really feel assured that the restoration is selecting up steam. A middle-of-the-road quantity, just like the one we acquired, confirms the restoration is progressing however nonetheless has work to do. The seemingly leads buyers to again off cyclical performs in the intervening time, however favor progress as a continued growth play.
iShares Core MSCI Rising Markets ETF (IEMG)
Rising markets shares have lagged the S&P 500 badly since February, however that is circled over the previous two weeks. Buyers had been involved that the COVID restoration was progressing far more slowly relative to the US and it may delay any broader financial restoration. Additionally, China shares have struggled as the federal government cracks down on a few of the nation’s largest corporations, whereas India acquired hit with an enormous surge in coronavirus instances.
Now, India has seen a drop in new instances virtually as quick because it noticed a rise. China shares have settled down and the weak greenback appears to be like prefer it may act as a tailwind as short-term dangers reasonable and provide chain bottlenecks slowly start to clear. I would not push too far out on the chance spectrum because it pertains to rising markets shares, however a broad-based low price possibility similar to this could present ample publicity.
First Belief Nasdaq Cybersecurity ETF (CIBR)
Cybersecurity hacks will in all probability by no means go away making the demand for software program options an enormous funding goal for many corporations worldwide. We simply noticed firsthand with the Colonial pipeline hack what one ransomware assault can have an effect on your complete U.S. economic system with gasoline shortages all around the nation for about two weeks.
Hackers are stepping up their aggressiveness with extra subtle ways and the demand for cybersecurity options will proceed to stay excessive. From a elementary standpoint, cybersecurity shares are fairly costly, which is commonly the case, however the narrative may present an additional bounce.
iShares MSCI USA Momentum Issue ETF (MTUM)
This is perhaps a counterintuitive decide given how momentum has been maybe essentially the most disappointing performing issue technique. However that is positively a case the place it is vital to look ahead and never again. That is as a result of the portfolio simply rebalanced itself on the finish of Might, which suggests it appears to be like an entire lot totally different in the present day than it did simply a few brief weeks in the past.
Beforehand, MTUM has very heavy in tech and shopper discretionary shares. At this time, it is acquired almost half of the portfolio’s belongings within the mixture of financials and industrials, whereas solely 17% now goes in the direction of tech. Which means MTUM has turned far more into a mixture cyclical/progress play, which could possibly be useful in the event you suppose shares will rise however are not sure about which section the market might favor.
SPDR Bloomberg Barclays Brief-Time period Excessive Yield Bond ETF (SJNK)
In case you’re on the lookout for fastened earnings choices as an alternative of fairness choices, junk bonds can be the best way to go. They have been just about holding tempo with Treasuries over the previous couple months, which suggests there hasn’t been a lot of a return premium for taking up the additional threat.
If situations are favorable for including threat, excessive yield bonds work, however given their current lack of outperformance, I might keep a bit extra on the conservative finish right here by specializing in the short-term finish of the maturity spectrum. A present 3.4% yield will not essentially resolve your whole earnings wants, however it ought to be a pleasant additional benefit if the bond market stays bullish.