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ETF Areas That Are Looking Attractive in April

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Sweta Jaiswal, FRM
·5 min read
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Wall Street has delivered a strong start to April 2021. The market rally that was witnessed in March is expected to continue this month as well.  The major factors that induced optimism last month like accelerated coronavirus vaccine rollout, continued progress in vaccine development, reopening of global economies, Fed’s support and unprecedented fiscal stimulus are still in place.

These factors are helping to strengthen the optimism for economic recovery. Notably, the central bank raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year. Furthermore, there are several new economic data releases which are pointing toward economic recovery.

Markedly, the recently-released robust job and manufacturing data majorly boosted market participants' confidence. The Department of Labor reported that the U.S. economy added 916,000 nonfarm jobs in March compared with an upwardly revised 468,000 in February. The consensus estimate stood at 657,000. March's job addition was the highest since August 2020. The unemployment rate slid to 6% last month from 6.2% in February (read: 4 Sector ETFs to Sizzle on Robust March Jobs Report).

Going on, the Institute of Supply Management (ISM) reported that its manufacturing Purchasing Managers' Index (PMI) for March rose to 64.7% from 60.8% in February, marking the highest reading since December 1983 and the 10th consecutive month of growth. The consensus estimate stood at 61.3%. Notably, any reading above 50 means expansion of manufacturing activities. Out of the total 18 industries, 17 reported expansion.

It is also worth noting here that, on Mar 31, President Joe Biden unveiled his $2.3-trillion infrastructure development plan that focuses on improving American infrastructure. The proposal includes funds for restoring roads and bridges, shoring up affordable housing, backing clean-energy projects and creating a nationwide broadband network. This will create millions of jobs, resulting in solid hiring in the coming months and benefit sectors like basic materials, industrials and utilities.

Moreover, consumer confidence in the United States hit a one-year high mark in March. The Conference Board's measure of consumer confidence index stands at 109.7, comparing favorably with February’s reading of 90.4. The metric witnessed the largest increase since April 2003. Moreover, March’s reading beat the consensus estimate of 96.9, per a Reuters’ poll.

It is worth noting here that the University of Michigan’s final sentiment index also surged to 84.9, comparing favorably with March’s preliminary reading of 83. The metric also beat the median estimate of 83.6, per a Bloomberg poll. It is important to note that the survey has covered responses received through Feb 24 to Mar 22, according to the article mentioned above.

Now, let’s take a look at some ETF areas that are presenting some great investment opportunities for April considering the current market scenario:

Momentum ETFs

While the broader stock market is expected to gain on optimism surrounding the rebounding U.S. economy and accelerated coronavirus vaccine rollouts, momentum investing will likely take centerstage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Investors can consider iShares Edge MSCI USA Momentum Factor ETF MTUM, Invesco DWA Momentum ETF PDP, Invesco S&P MidCap Momentum ETF (XMMO), VictoryShares USAA MSCI USA Value Momentum ETF (ULVM) and SPDR Russell 1000 Momentum Focus ETF (ONEO) (read: Ride the Latest Fed Minutes Optimism With These ETFs).

Growth ETFs

Growth stocks are generally expected to witness a positive revenue and earnings trend at a faster rate than the industry average. As such, growth funds tend to outperform during an uptrend. While there are several options in the growth ETF world, we have highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF VUG, Schwab U.S. Large-Cap Growth ETF SCHG, iShares Core S&P U.S. Growth ETF (IUSG), SPDR S&P 500 Growth ETF (SPYG) and Vanguard Mega Cap Growth ETF (MGK) (read: Don't Let Underperformance in Growth ETFs Fool You).

Travel and Leisure ETFs

A larger number of Americans are expected to travel this spring with accelerated rollouts of COVID-19 vaccinations. Going on, the bouts of latest data along with positive news in the space indicate that travel demand is growing.  

In this regard, the latest data from Transportation Security Administration, highlights that more than one million passengers have continuously passed through a Transportation Security Administration (TSA) screening checkpoint in a day since mid-March in the United States. In fact, U.S. air travel set a pandemic-era record with screening more than 1.5 million people during the Easter weekend, a record since March 2020. Thus, investors can consider ETFMG Travel Tech ETF AWAY, SPDR S&P Transportation ETF XTN, Invesco Dynamic Leisure and Entertainment ETF (PEJ) and U.S. Global Jets ETF (JETS) (read: Travel & Leisure ETFs Ready to Bloom in Spring).

Small-Cap ETFs

Small-caps stocks, as indicated by the Russell 2000 Index, have been outperforming the broader market and hitting new all-time highs. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are thus well-positioned to outperform when the economy improves. These stocks generally outperform on an improving U.S. economy. The latest release of economic data is also indicating toward an improving economy. Therefore, investors can consider Schwab U.S. Small-Cap ETF SCHA, SPDR S&P 600 Small Cap ETF SLY, Vanguard S&P Small-Cap 600 ETF (VIOO) and John Hancock Multifactor Small Cap ETF (JHSC) (read: A Spread of Small-Cap ETFs Touching New Heights).

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