Interest rates, at record lows, have made it extremely difficult for investors to generate solid current income in the capital markets. The situation is the same in many countries, given the meager interest rates from government bonds. Traders are increasingly turning to Exchange Traded Funds, or ETFs, to bolster investment portfolios given their sizeable and benchmark beating yields.
High yielding ETFs are increasingly providing investors with avenues to compensate for capital losses in the equity markets. ETFs that offer 3% yields and above and have decent price performance could be the best alternatives for riding the challenging environment fueled by COVID-19.
Amid the disruptions triggered by COVID-19, some ETFs continue to outperform the overall stock market at the back of a perfect opportunity fuelled by the pandemic. ETFs focused on e-commerce outlets have emerged as ideal investment alternatives for riding out the challenging investment environment.
E-commerce sales are on the rise and expected to continue rising as people refrain from shopping in brick and mortar stores. With e-commerce sales expected to increase 20% this year, e-commerce ETFs continue to offer attractive investment opportunities.
Amplify Online Retail ETF (NASDAQ: IBUY) is one of the ETFs that offers a cost-efficient way for investors to own a basket of companies with significant revenues in the e-commerce space. It also continues to outperform the overall market and likely to rally in the second half of the year. ProShares Long Online/Short Stores ETF (NYSE:CLIX) is another e-commerce focused ETF that seeks investment results before fees and expenses.
Focus on Inverse ETFs
The coronavirus pandemic continues to fuel extreme levels of volatility in the market. Likewise, the demand for inverse or inverse-leveraged ETFs has increased. Unlike other ETFs, inverse ETFs allow investors to create short positions in underlying indexes through the use of swaps options and futures contracts.
The inverse ETFs have allowed investors to generate significant returns over a short period. Some of the Inverse ETFs those investors are increasingly turning to for short positions in the equity markets include ProShares Short Dow30 (NYSE: DOG) and ProSharesUltraShort Dow 30 (NYSEARCA: DXD).
Safe Haven: Gold ETFs
The uncertainties that continue to grip the global economy amid the COVID-19 pandemic has also forced investors to rush to safe-havens to hedge against losses in the equity markets. Gold ETFs have since emerged as a bright spot in the ETFs space as the precious metal continues to edge higher amid a spike in demand for safe-havens.
Net inflows into gold-backed ETFs have already increased to $39.5 billion, beating the previous annual inflow record of $23 billion set in 2016. Some of the gold ETFs those investors are increasingly turning to include SPDR Gold Trust (NYSE:GLD) and the shares iShares Gold Trust (NYSE: IAU).
Similarly, investors have already started shunning some ETFs. Financial sector ETFs have taken a significant beating in the wake of central banks cutting interest rates to record lows. With the outlook in the financial sector looking gloomy amid concerns about recessions, financial ETFs have seen their sentiments turn sour.
Financial Select Sector SPDR Fund (NYSE: XLF) is one such ETF that has taken a significant beating. The ETF is down by 25% for the year as low-interest rates suppress banks’ net interest margins.