Many of the factors that predominated at the beginning of the year—low unemployment, strong corporate profits, and lingering trade wars—are still driving the market at the midpoint.
However, things have changed, as they always do in the investing world. Earnings growth, while still overwhelmingly positive, has decelerated. Central bank policy has become more uncertain, with expectations for the US Federal Reserve’s next move in particular becoming more of a question mark. And emerging geopolitical conflicts threaten to unleash instability and slow the market’s bullish 2019 momentum.
If you haven't done so already, the halfway point can be a good time to reflect on your investment mix. If you are interested in exchange-traded funds (ETFs), one tool that may be of use is Fidelity's ETF ScreenerLog In Required that can quickly sort through a lot of data based on choices you make, to help you identify specific investments. You can search for ETFs using a variety of characteristics like the funds' objectives, fundamentals, technicals, performance, volatility, trading characteristics, tax considerations, and analyst ratings.
Below, we feature 3 examples of ETF screens that you might consider running, plus the top results for each.
1. Small-cap ETFs
Strong earnings growth and other positive factors have overwhelmed reasons to think stocks might falter on tariffs, a maturing business cycle, and other risks thus far this year. Indeed, stocks are on a bullish pace, with the S&P 500 up 18% year to date on a price return basis.
Yet the gains have not been as broad based as one might expect. Small cap stocks, as measured by the S&P Small Cap 600 Index, have trailed the broad market, gaining 9% on a price return basis. In fact, small caps are at their lowest point relative to large caps (as measured by the cumulative spread between a small cap benchmark and the S&P 500) since 2016, and are close to matching their lowest relative point versus large caps since 2009 (see S&P 500 Index vs S&P Small Cap 600 Index ETF chart).
If you are bullish on small caps, and think their valuation relative to the broad market presents a value opportunity, you might explore small-cap ETFs using the Fidelity.com ETF screener. This can be done in the ETF screener by selecting market cap, US small/micro cap theme. As of June 25, 2019, the top 10 results of this screen, sorted by net assets, were:
- iShares core S&P Small-Cap ETF (IJR)—Available for purchase commission-free on Fidelity.com.
- iShares Russell 2000 ETF (IWM)—Available for purchase commission-free on Fidelity.com.
- Vanguard Small Cap ETF (VB)
- Schwab US Small-Cap ETF (SCHA)
- Vanguard Russell 2000 ETF (VTWO)
- SPDR Portfolio Small Cap ETF (SPSM)
- SPDR S&P 600 Small Cap ETF (SLY)
- Vanguard S&P Small-Cap 600 ETF (VIOO)
- iShares Microcap ETF (IWC)—Available for purchase commission-free on Fidelity.com.
- iShares Morningstar Small-Cap ETF (JKJ)—Available for purchase commission-free on Fidelity.com.
As with any screen result, more research is needed to determine if any of these ETFs are right for your specific investing strategy. For instance, small caps (as well as micro caps, which are included in this screen) can be riskier than large caps. Additionally, some of these ETFs can feature lower liquidity and higher trading costs relative to other ETFs.
2. New sector ETFs
It's been 9 months since the launch of the US market’s newest sector: communication services. This sector has outpaced the broad market thus far in 2019, gaining 19%.
Communication services includes some of the largest companies in the world, several of which have dominated the news cycle this year. The sector was created out of companies from several other sectors—the technology, telecom, and consumer discretionary sectors. If you are looking to increase exposure to some of these companies, along with the rest of this new sector, you can find a list of ETFs by selecting sector, then communication. Here are the top 10 results of communication services ETFs, sorted by net assets, as of June 25, 2019:
- Communication Services Select Sector SPDR Fund (XLC)
- Vanguard Communication Services ETF (VOX)
- iShares US Telecommunications ETF (IYZ)—Available for purchase commission-free on Fidelity.com.
- Fidelity MSCI Communication Services Index ETF (FCOM)—Available for purchase commission free on Fidelity.com.
- Global X Social Media Index ETF (SOCL)
- First Trust Indxx NexTG ETF (NXTG)
- Defiance Next Gen Connectivity ETF (FIVG)
- Invesco Dynamic Media ETF (PBS)—Available for purchase commission-free on Fidelity.com
- SPDR S&P Telecom ETF (XTL)
- Global X MSCI China Communication Services ETF (CHIC)
There are several risk factors to consider among these ETFs, including relatively low assets under management and exposure to foreign markets. Additionally, you should think about how concentration risk associated with sector investments may diminish the diversification of your portfolio.
3. Corporate bond ETFs
In addition to your equity positions, you may also want to reassess any bond holdings you have—especially due to the potential for the interest rate environment to continue to change. It’s a good idea to regularly assess the sensitivity of one’s bond portfolio to changing interest rates. It is worth noting that Federal Reserve Chairman Powell recently threw some cold water on the expectations among some investors for the US central bank to raise rates.
In particular, the decelerating earnings growth picture—due to higher worker compensation, slower global growth, and a fading boost from the 2018 tax changes—might lend itself to reevaluating any corporate bond holdings. If you'd like to look at corporate bond ETF ideas using the screener, select fixed income, then US corporate. The largest 10 corporate bond ETFs, sorted by net assets, as of June 25, 2019, were:
- iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)—Available for purchase commission-free on Fidelity.com.
- Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
- SPDR Portfolio Short Term Corporate Bond ETF (SPSB)
- SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB)
- Vanguard Long-Term Corporate Bond ETF (VCLT)
- Invesco Bulletshares 2020 Corporate Bond ETF (BSCK)
- Invesco Bulletshares 2021 Corporate Bond ETF (BSCL)
- Invesco Bulletshares 2022 Corporate Bond ETF (BSCM)
- iShares iBonds Dec 2020 Corporate Bond ETF (IBDL)—Available for purchase commission-free on Fidelity.com.
- Ishares Long-Term Corporate Bond ETF (IGLB)—Available for purchase commission-free on Fidelity.com.
If you think one or more of the ETFs identified by a screen is worth considering to help manage the risk in your portfolio or achieve your objectives, your next step should be to research it further.
Trading costs are among the many factors that you should analyze when considering an ETF. Factoring in the impact of commissions, for example, can be particularly relevant for active investors who trade somewhat frequently—especially if you are making relatively small-sized trades—as well as long-term investors executing a dollar cost averaging strategy.
In addition to commissions, a few other key factors to consider for any ETF (which you can find on Fidelity.com, on an ETF’s snapshot page) are:
- Expense ratio: Look for low expense ratios to reduce your overall costs.
- Bid-ask spread: Look for small bid-ask spreads to reduce costs of investing.
- Tracking error: Look for a low tracking error to find ETFs that indicate a better job of replicating their benchmark indexes.
If you find ETFs with similar objectives, you could compare their expense ratios, bid-ask spreads, and/or tracking error to find the better deal. You can filter for all of these factors using the ETF screener.
Knowing what the individual components of an ETF are can also give you a better sense of what you are buying or selling. You can find an ETF’s components on its ETF snapshot page on Fidelity.com, under Portfolio Composition. On this page, you can find the ETF’s style (value, growth, or blend) and size (large, mid, or small), as well as analyst ratings and key statistics.
Finally, you should fully understand the risks involved in any investment strategy. Any investing opportunity should be considered within the context of a well-diversified investment strategy that conforms to your specific time horizon, objectives, and risk parameters.
Next steps to consider
Find ETFs and ETPs that match your investment objectives.
Learn what you need to know before trading the market.
See the range of available Fidelity Funds and learn the benefits of each asset class.