ETFs to Play as Goldman Lowers US Q1 GDP Outlook

Sweta Jaiswal, FRM

Goldman Sachs recently trimmed the U.S. economic growth forecast for the first quarter of 2020 to 1.2% from 1.4% due to aggravating coronavirus concerns. The current GDP projections compare unfavorably with the 2.1% rise in economic growth in the fourth quarter of 2019 and 2.3% rise in 2019. Moreover, major U.S. indices like the Dow Jones and S&P 500 saw the steepest one-day decline of around 3.5% and 3.3%, respectively, since 2018 on Feb 24. Major U.S. companies like the NIKE, Inc. NKE, Apple Inc. AAPL and The Walt Disney Company DIS, which have extensive operations in China, saw their shares decline more than 4% on the day (read: ETF Strategies to Mark as Virus Scare May Hit Global Growth).

Iran, Italy and South Korea are seeing major increases in the number of Covid-19 cases. It is being feared that the outbreak might escalate into a global pandemic, disrupting global supply chains and economic growth for a long time period.

Given the situation, let’s take a look at some ETF areas that investors can follow for a smooth sail in these turbulent times.

Alternative Energy ETFs

Alternative energy   includes energy sources that act as a replacement to conventional and non-renewable fossil fuel. Going by an International Energy Agency (“IEA”) report, worldwide supplies of renewable electricity are estimated to expand 50% within five years. Moreover,  according to the IEA, renewable energy sources are anticipated to make up 30% of the world’s electricity by 2024 in comparison to the current 26%.

Demand for energy sources is expected to rise over time. Per an IEA report, energy demand is envisioned to rise 1% annually through 2040. It further added that 50% of the surplus energy demand will be met by renewables with solar power becoming the most favored source by 2040. Against this backdrop, investors can consider Invesco Solar ETF TAN, iShares Global Clean Energy ETF ICLN, Invesco Cleantech ETF PZD, First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN and ALPS Clean Energy ETF ACES (read: Best ETFs to Combat Climate Change).

Biotech ETFs

Ramped-up mergers and acquisition (M&A) deals, growing AI dominance and favorable regulatory tidings continue to work in favor of the biotech market. The sector has been benefiting from a flurry of positive news, including trial results and deal activities. M&As are leading the sector as sluggishness in mature products has compelled companies to explore buyouts to bolster pipelines. Several other large-cap pharma and bigger biotech companies are inking collaboration deals with smaller ones for the same. Thus, investors seeking to gain traction from the strengthening biotechnology market can take a look at iSharesNasdaq Biotechnology ETF IBB, SPDR S&P Biotech ETF XBI, First Trust Amex Biotechnology Index FBT, ARK Genomic Revolution Multi-Sector ETF ARKG and VanEck Vectors Biotech ETF BBH (read: A Guide to Biotech ETF Investing).

Quality ETFs

Quality ETFs allow investors to enjoy smooth trading and generate market-beating returns in the current market environment.These products generally reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. Given this, investors can look at the following ETFs — iShares Edge MSCI USA Quality Factor ETF QUAL, Invesco S&P 500 Quality ETF SPHQ, Barron's 400 ETF BFOR, FlexShares Quality Dividend Index Fund QDF and SPDR MSCI USA StrategicFactors ETF QUS (read: Here's Why You Should Bet on Quality ETFs & Stocks).

Bond ETFs

Notably, the 30-year Treasury yield declined to a record low level on Feb 21. The declining yields were a result of investors’ flight for safety to bonds, as concerns over slowing global economic growth due to the coronavirus outbreak started escalating. The rapidly-aggravating concerns are making high-yielding fixed-income investments attractive. Against this backdrop, investors can play the following ETFs — iShares Core U.S. Aggregate Bond ETF AGG, Vanguard Total Bond Market ETF BND, iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, Vanguard Intermediate-Term Corporate Bond ETF VCIT and Vanguard Long-Term Treasury ETF VGLT (read: Is it the Right Time to Buy Bond ETFs? Let's Explore).