Increasing uncertainty pertaining to the China turmoil, global growth worries, slumping commodities and timing of the interest rate hike in the U.S. are general concerns. In this backdrop that has lasted for quite some weeks now, the broader U.S. market has trapped itself in a nasty web of trading.
While the U.S. economy is on a firmer footing, calling for a rate hike sometime later in the year, the fundamentals in other developed and developing markets are deteriorating. This is especially true given the slowdown in Japan, sluggishness in Europe, technical recession in Canada and weak growth in emerging markets. Additionally, investors are wary of third-quarter earnings, which are expected to drop 5.8% on 3.9% lower revenues for the S&P 500 index, as per the Zacks Earnings Trends.
Moreover, the ongoing battle over the funding for Planned Parenthood between Republicans and Congress could lead to the possible shutdown of the federal government at the end of the month. All these conditions are increasing the volatility in the market, putting the stocks’ returns at risk. However, the bullish sentiment for U.S. stocks remains intact given the substantial improvement in the economy and a healing job market (read: 5 High Quality ETFs for an Uncertain Market).
In such a scenario, investors seeking to participate in the growing economy but worried about uncertainty should consider mid-cap stocks in the basket form.
Why Mid Caps?
While large companies are normally known for stability and smaller ones for growth, mid caps offer the best of both the worlds, allowing growth and stability in portfolios simultaneously. These middle-of-road securities are arguably safer options and have the potential to move higher in turbulent times, especially if political issues or financial instability creeps into the picture.
Further, honing in on growth securities in this capitalization level allows investors to earn more returns. This is because growth stocks refer to those high quality stocks that are likely to witness revenues and earnings increasing at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices (read: 3 Sector ETFs to Watch on Revenue Growth Potential).
There are currently a number of ways to tackle this overlooked part of the market segment through ETFs, giving exposure to various styles including broad value and growth. With such a large number of choices, it may be difficult to choose the right funds. After all, many of these products target the same securities though they have different tilts, weighting schemes or focus for their portfolios.
How to Pick The Right ETFs
One way to narrow down the list is to utilize the Zacks ETF Rank. This system looks to find the best ETFs in a given market segment based on a number of factors such as industry outlook and expert surveys; and then apply ETF-specific factors (like expense ratios and bid/ask spreads).
Leave A Comment