After a sudden market correction, investors my want to single out some sector-specific exchange traded funds to ride a potential rebound.
According to Barclays, historical trends suggests that the equity market recovery has more room to run, reports Jamie Chisholm for the Financial Times.
Barclays’ equity strategy team found that since 1940 there have been 10 instances when the S&P 500 plunged by at least 10% in four sessions.
“In every case except 1940, the S&P 500 had positive returns during the five days after the 10 per cent decline,” according to Barclays. “In two instances (1962 and 2008), the rebound was not sustained and returns over the subsequent 20 days were negative. Still, after 250 trading days the S&P 500 was higher nine out of 10 times, and in most cases it was substantially higher.”
Barclays also found that some sectors stood out during the bounce back. Specifically, the immediate rebound was led by financial stocks, but the bank warned that the financials only outperformed over the short-term.
ETF investors can also track the financial space through broad sector ETFs, including the iShares U.S. Financials ETF (NYSEArca: IYF), Financial Select Sector SPDR (NYSEArca: XLF) and Vanguard Financials ETF (NYSEArca: VFH). These broad market capitalization-weighted ETFs include heavy exposure to the major banks. [Financial ETFs Are the Place to Be]
Looking further out, it was the “dividend sectors such as telecommunications and utilities that historically produced among the highest excess returns in the 20 and 50 days after the initial decline,” Barclays said.