ETF Strategies to Capture the Shifting Dynamics Ahead | ETF Trends

Investors have been jumping back into financial markets in the past week after weeks of losses sent many packing, but exchange traded fund investors shouldn’t grow too complacent.

According to Bank of America data, investors dumped $18.9 billion back into equities and $6.3 billion into bonds over the last week after weeks of outflows, Reuters reports.

BofA strategists also warned against reading too much into the recent rally. U.S. stocks gained almost 9% since their mid-March levels, cutting year-to-date losses to under 5% as of March 31 and bringing benchmarks back to within striking distance of their previous record highs from early January.

Looking ahead, the BofA strategists argued that recession risks will “jump” in the months ahead due to an the end of the bull era of central bank excess, elevated Wall Street inflation, eroding globalization, a bear era of government intervention, social and political polarization, and Main Street geopolitical isolationism.

Consequently, the BofA strategists advised investors that portfolios should be positioned for stagflation and dollar debasement, with a specific long-term buy outlook on the energy sector and a long-term sell outlook on the technology segment.

Investors can also utilize ETFs to capture these changing dynamics. For example, the Energy Select Sector SPDR (NYSEArca: XLE), the Vanguard Energy ETF (NYSEArca: VDE), the iShares U.S. Energy ETF (NYSEArca: IYE), and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY) offer broad exposure to the energy sector.

Investors may hedge potential downside risks in the technology sector through inverse or bearish ETF plays. For instance, the ProShares UltraShort Technology (NYSEArca: REW) takes the -2x or -200% daily performance of the Dow Jones U.S. Technology index, the Direxion Daily Technology Bear 3X Shares (NYSEArca: TECS) reflects the -3x or -300% daily performance of the S&P Technology Select Sector Index, and the Direxion Daily Semiconductor Bear 3X Shares (SOXS) aims to take the -300% daily performance of the PHLX Semiconductor Sector Index.

Additionally, investors can also hedge against a dipping tech-heavy Nasdaq through bearish ETFs as well. For instance, the ProShares Short QQQ ETF (NYSEArca: PSQ) takes the inverse or -100% daily performance of the Nasdaq-100 Index. For the aggressive trader, the ProShares UltraShort QQQ ETF (NYSEArca: QID) tracks the double inverse or -200% performance of the Nasdaq-100, and the ProShares UltraPro Short QQQ ETF (NasdaqGM: SQQQ) reflects the triple inverse or -300% of the Nasdaq-100.

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