In the 1600s, the Dutch East India company was a global powerhouse that would be equivalent to Apple, Amazon and now Microsoft today, which hit $1 trillion in market capitalization recently. Times are definitely changing in a market landscape highlighted by the advent of exchange-traded funds (ETFs) that have revolutionized the financial industry.
With over 2,000 ETFs available on the market, which ones are poised to shine in 2019 and beyond that? Here’s a short list of ETFs worth considering for your portfolio:
iShares U.S. Healthcare Providers ETF (NYSEArca: IHF)
The S&P 500 health care sector declined 4.4 percent last week, making it the worst weekly decline since late December. According to Andrew Thrasher of Thrasher Analytics, the decline was a short-term health care bull’s nightmare—93 percent of health care equities fell below their 20-day moving averages.
Long-term bulls, however, can feel at ease knowing that the core business of health care is here to stay. Health care’s decline primarily came as a result of political blowback, such as calls for policies demanding universal health care.
Ultimately, it was to push political agendas to separate the health care business from health care itself.
“Because this latest move was largely caused by political hot air (so to speak) and not something structural within the sector, I think we could see a bounce back in some of these names,” said Thrasher in a note to clients. “I believe the stocks have been over-extended to the downside.”
Looking under the hood of IHF, its heaviest weighting is UnitedHealth Group followed by Anthem Inc, CVS Health Corp and Cigna Corp—the majority of which administer care. Ultimately, the core business model around companies that administer care centers on treating the sick, and until a super-vaccine that prevents all illnesses is developed, health care is a necessity.
Xtrackers Harvest CSI 300 China A ETF (NYSEArca: ASHR)
Trade deal or no trade deal, China is a major player in the world economy and will be for the foreseeable future. While it plays second fiddle to the United States in terms of sheer gross domestic product (GDP), it’s importance for global growth can’t be ignored.
China is beginning to deregulate access to its markets in order to pave the way for more foreign investments to a variety of asset classes. That being said, the capital flowing into China will turn from a trickle into a full-fledge gush if it hasn’t already.
A way for investors to gain exposure to China’s biggest, best and most authentic equities is via the country’s A-shares. ASHR seeks investment results that track the CSI 300 Index that is designed to reflect the price fluctuation and performance of the China A-Share market.
In essence, ASHR is composed of the 300 largest and most liquid stocks in the China A-Share market, including small-cap, mid-cap, and large-cap stocks. Without a majority of its holdings in state-owned enterprises compared to other ETFs, ASHR provides a more diversified representation of gaining access to the world’s second largest economy.
“These are the stocks that are going to be reactive to China policy and China sentiment–most portfolios are missing these,” Luke Oliver, Head of U.S. ETF Capital Markets. “It’s a really critical point because you’re missing a lot of these companies and not diversified enough in these companies.”
“A-shares give you a lot more diversification and lot of more exposure to the actual Chinese economy,” said Oliver.
Global X FinTech ETF (NasdaqGM: FINX)
Crytocurrency and blockchain are seen as major disruptors in the way individuals pay for goods or services with fiat currency. While that space is still trying to gain legitimacy, payment processing systems are already sprouting up and most are not aware of it–it’s also providing an impetus for the growth of financial technology or “fintech” for short.
That’s because contactless payment systems typically fly under the radar, but more popular applications like Apple Pay are drawing deserved attention to the industry. Moreover, the fintech industry’s giants are looking to get even bigger with merger and acquisitions abound.
International financial services provider Fidelity National Information Services agreed last month to purchase payment processing company Worldpay for $34 billion, making it the biggest deal thus far in a rapidly-expanding space that could put fintech ETFs like FINX in favor. The purchase of Worldpay would give FIS a large footprint in the e-commerce market given that the former is responsible for facilitating 40 billion transactions per year.
“Scale matters in our rapidly changing industry,” said Gary Norcross, FIS’s chairman and chief executive in a statement.
ARK Innovation ETF (NYSEArca: ARKK)
Whether society is ready for it or not, robotics, artificial intelligence (AI), machine learning, or any other type of disruptive technology will be the next wave of innovation. For investors who missed out on the bull market run of FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks, they can look to capitalize on disruptive tech options in 2019 and beyond that.
Disruptive technology is not relegated to certain sectors as it will permeate into all industries in some form or fashion. For example, augmented reality is technology comprised of digital images superimposed over the real world, and its use is primed to drive industry growth–industries like real estate and manufacturing are already putting the technology to use in a variety of ways.
According to the Harvard Business Review, global firm Deloitte identified seven disruptive forces that leaders should understand and incorporate into their strategy for future growth:
- Internet of things (IoT): disrupting the labor market and forcing employees to be “tech fluent.”
- Continued growth of big data via analytics in organizations
- “Cyber-physical world” that focuses on efficiency and the automation of manual tasks
- Automation and higher-level value creation
- The concept of “career” is changing via technology, resulting in a 60-70-year work life with continuous learning and career shifts.
- An explosion in contingent work with a distributed talent pool that improves productivity and speed
- Diversity and generational change for the workforce
iShares US Aerospace & Defense ETF (BATS: ITA)
ITA may have suffered from continued fallout from the crash of a Boeing 737 MAX 8 plane during Ethiopian Airlines Flight 302 on March 10, but has recovered since. ITA tracks the Dow Jones U.S. Select Aerospace & Defense Index composed of U.S. equities in the aerospace and defense sector that includes manufacturers, assemblers and distributors of aircraft and aircraft parts.
It’s difficult to deny the impact of the aerospace and defense sector given its sheer size. According to the US Bureau of Economic Analysis (BEA), the US aerospace sector is the largest in the world, with a gross output value of USD 123.52 billion, in 2016.
Executives in the U.S. aerospace, defense, and government services industry are expecting moderate to strong economic growth through the year.
The data is derived from an annual mergers and acquisitions survey by investment banker KippsDeSanto & Co. According to the survey, deal makers are optimistic about overall economic growth and mergers and acquisitions activity in 2019.
Additionally, more than 80 percent of survey respondents predict that the federal midterm election results won’t have a profound influence on mergers and acquisitions activity. Political analysts were expecting a split Congress following the post-midterm election results that saw the Democrats take control of the House of Representatives.
Political gridlock could force less government spending for defense initiatives, but the survey is showing otherwise.
“Our 2019 survey results suggest continued strong mergers and acquisitions activity in the aerospace, defense, and government services sectors,” says Managing Director Kevin DeSanto.
For more market trends, visit ETF Trends.