Stimulus To Prop Up Market: Beaten Down ETFs To Buy

After a historic crash, the stock market might showed some respite on optimism over the $2 trillion stimulus designed to curb the economic fallout of the coronavirus pandemic, which has infected more than 375,000 people worldwide and caused 16,362 deaths.

The Senate leaders and the Trump administration reached an agreement early today on a $2 trillion stimulus package, setting the stage for swift passage of the massive legislation through both chambers of Congress. The stimulus bill, by far the largest ever, aims to flood the economy with capital by sending $1,200 checks to many Americans, creating a $367 billion loan program for small businesses, offering $50 billion specifically for passenger airlines, $8 billion for cargo airlines, and $17 billion “for firms that are deemed important to national security.” Other provisions include a massive boost to unemployment insurance, $150 billion for state and local stimulus funds and $130 billion for hospitals.

The Senate is expected to vote on the bill later today before it goes to the House of Representatives and then to President Donald Trump (read: Lower Risk in Your Portfolio with These ETFs).

The new deal added to aggressive action announced by the Federal Reserve in recent days. After slashing interest rates to near zero and offering to buy more government bonds and mortgage-backed securities as needed to support smooth market functioning, the Fed will now lend against student loans and credit card loans, as well as back the purchase of corporate bonds and direct loans to companies. This represents the most extreme intervention in the economy by the central bank in its history of more than 100 years.

Given the rebounding fundamentals, investors should take advantage of the beaten-down prices. For them, we have highlighted five solid ETF picks that were in red over the past month but have solid upside potential. All these have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).

Invesco Dynamic Building & Construction ETF PKB – Down 41%

This fund follows the Dynamic Building & Construction Intellidex Index, holding 29 well-diversified stocks in its basket with each accounting less than 6.7% share. It has amassed assets worth $52.7 million and sees lower volume of roughly 19,000 shares per day on average. Expense ratio comes in at 0.60%. PKB has a Zacks ETF Rank #2 with a High risk outlook (read: Is it Wise to Buy Housing ETFs Right Now?).

iShares U.S. Aerospace & Defense ETF (HM:ITA) – Down 38.8%

This fund provides exposure to U.S. companies that manufacture commercial and military aircrafts and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. Holding 33 stocks, the fund is highly concentrated on the top two firms at 16.9% and 14.2%, respectively, while other firms hold not more than 7.7% share each. The fund has AUM of nearly $2.7 billion and charges 42 bps in fees a year. Volume is good at around 262,000 shares. The ETF has a Zacks ETF Rank #2 with a Medium risk outlook (read: Sector ETFs in Focus Amid Coronavirus Rout).

Invesco S&P SmallCap 600 Pure Growth ETF RZG – Down 34.7%

This fund tracks the S&P SmallCap 600 Pure Growth Index, which measures the performance of securities that exhibit strong growth characteristics in the S&P SmallCap 600 Index. Holding 139 securities in its basket, it is well spread out across components with each holding no more than 2.8% share. The fund has amassed $97.4 million in its asset base while trading in a light volume of about 11,000 shares a day on average. It charges investors 35 bps in annual fees and has a Zacks ETF Rank #2 with a High risk outlook.

First Trust Mid Cap Core AlphaDEX ETF FNX – Down 32.6%

This ETF targets the mid-cap segment of the broader stock market. It follows the NASDAQ AlphaDEX Mid Cap Core Index and holds 451 stocks in its basket with none accounting for more than 0.83% of assets. The product has AUM of $506.6 million and trades in average daily volume of 45,000 shares. It charges 61 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

First Trust Total US Market AlphaDEX ETF TUSA – Down 32.2%

This fund tracks the NASDAQ AlphaDEX Total US Market Index, which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US Large Cap Index, the NASDAQ US Mid Cap Index and the NASDAQ US Small Cap Index. It holds a broad basket of 1200 stocks with none making up for more than 0.81% share. With AUM of $10.6 million and average daily volume of 2,000 shares, the product charges 70 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: S&P 500 to Fall Further: Bet on These ETFs).

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Invesco Dynamic Building & Construction ETF (PKB): ETF Research Reports

First Trust Mid Cap Core AlphaDEX ETF (FNX): ETF Research Reports

iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports

Invesco S&P SmallCap 600 Pure Growth ETF (RZG): ETF Research Reports

First Trust Total US Market AlphaDEX ETF (TUSA): ETF Research Reports

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Zacks Investment Research