ETFs to Access 'Turbocharged Transformations' in Today's Markets

The coronavirus pandemic has changed the world we live in and the markets exchange traded fund investors should be looking into.

“The COVID-19 pandemic has accelerated profound shifts in how economies and societies operate. These transformations run across four dimensions: sustainability, inequality, geopolitics and the joint fiscal-monetary policy revolution,” according to the BlackRock Investment Institute (BII).

“Three of BII’s new investment themes — The new nominal, Globalization rewired and Turbocharged transformations — reflect these shifts. Taken together, they call for a fundamental and immediate rethink of portfolio allocations.”

BlackRock argued that the pandemic has added fuel to pre-existing structural trends like the increased focus on sustainability, rising inequality within and across nations, and the dominance of e-commerce at the expense of traditional retail.

“In the long run, we prefer sustainable assets amid growing investor attention to sustainability-related issues. We take a barbell approach in the near term, favoring quality and big tech plus selected cyclical exposures. We see the tech and healthcare sectors offering exposure to structural growth trends, and U.S. small caps geared to an expected cyclical upswing in 2021,” according to BlackRock.

As a way to gain exposure to these areas, investors can look to ETF strategies. For example, the iShares ESG Aware MSCI USA ETF (ESGU) seeks to track the investment results of the MSCI USA Extended ESG Focus Index. The underlying index is optimized index designed to reflect the equity performance of U.S. companies that have favorable environmental, social and governance (“ESG”) characteristics, while exhibiting risk and return characteristics similar to those of the MSCI USA Index.

The iShares MSCI USA Quality Factor ETF (QUAL) seeks to track the investment results of the MSCI USA Sector Neutral Quality Index composed of U.S. large- and mid-capitalization stocks with quality characteristics as identified through certain fundamental metrics, such as high return on equity, stable year-over-year earnings growth, and low financial leverage.

The iShares Exponential Technologies ETF (NasdaqGS: XT) seeks to track the investment results of an index composed of developed and emerging market companies that create or use exponential technologies. The ETF tracks the Morningstar Exponential Technologies Index and holds nearly 200 stocks.

Lastly, the iShares Core S&P Small-Cap ETF (IJR) is a low-cost and tax efficient investment to gain exposure to U.S. small-cap stocks. IJR tracks the S&P Small600 Index, which cover a narrower range of capitalization than the companies covered by the Russell 2000 index and is comprised of small-cap companies taken from the broader S&P 1500. ETF investors have used IJR at the core of a portfolio to seek long-term growth.

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