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6 ETFs for a Historically Low August

The month of August kicked off with bullish sentiments in the U.S. markets. While U.S. GDP growth expanded 2.6% year over year in the second quarter, double the first-quarter growth of 1.2%, manufacturing numbers – out this month – point to a steady recovery in the economy (read: ETFs to Buy or Avoid After Strong Q2 GDP).

This along with upbeat earnings took the broader market to fresh highs. The Dow Jones Industrial Average index hit a record 22,000-mark to start August. However, barring these economic achievements and strong corporate earnings, market momentum remained subdued on uncertainty related to Trump’s proposed pro-growth policies (read: Dow at Record High: More Upside for ETFs?).

In fact, a consensus carried out from 1950 to 2016 shows that August ended up offering positive stock returns in 37 years and negative returns in 30 years, per moneychimp.com, with an average return of negative 0.27%.

If history is any guide, the month can easily be touted as subdued. Against this historical market performance, let’s take a look at the ETFs that can come across as intriguing bets for the month.

VanEck Vectors AMT-Free Long Municipal Index ETF MLN

With Trump’s policies facing roadblocks on political debacle, investors are shying away from their bets on a sooner-than-expected tax reform. The President’s inability to pull off the Health Care bill seamlessly raised questions on the materialization of his other promises like tax cuts. In fact, it is too early to factor in the tax cut prospects in muni ETF investing.

Also, safe haven trade like U.S. Treasury bond investing prevailed on subdued inflation and a dovish Fed. This made municipal bonds – excellent choices for investors seeking a steady stream of tax free income – appealing again. Notably, muni bonds normally yield higher than Treasuries and provide greater safety than corporate bonds. The dividend yield of MLN is 3.01% annually (read: Trump Tax Plan & Muni Bond ETFs: What Investors Need to Know).

iShares Global Utilities ETF JXI

As per Equityclock, utilities enjoy seasonal strength in the month of August. This sector is less ruffled by economic fluctuations due to its non-cyclical nature. A dovish Fed and easy money policy in other corners of the developed world actually kept bond yields low and perked up economic activity. This should bode well for the safe sector utility which performs well in a low rate environment (read: Time to Buy Global Utility & Infrastructure ETFs?). 

The fund JXI puts over 57% of its weight in the U.S. followed by U.K. (7.88%) and Spain (6.46%). This makes the fund more U.S.-centric. It yields about 3.92% annually, which beats the benchmark U.S. Treasury yields by a wide margin.        

iShares MSCI Japan Small-Cap ETF SCJ

As per BlackRock, “wages are rising just enough [in Japan] to bolster domestic consumption without eroding profit margins.” Plus, equities have low valuation. There is only one glitch, i.e., strengthening yen against the greenback. CurrencyShares Japanese Yen Trust (FXY) gained about 3% in the last one month (as of August 3, 2017).

This doesn’t make a great situation for Japan large-cap investing as this has a wider foreign exposure. Investors can thus play Japan’s small-cap stocks and ETFs like SCJ as Japan’s domestic demand is improving and small-caps are less perturbed by currency translations.  

iShares Emerging Markets Dividend ETF DVYE

Emerging markets have been pretty strong of late. We believe August will be no exception when it comes to EM ETF rally. The fund DVYE measures the performance of emerging market companies that provided relatively high dividend yields on a consistent basis over time. The fund yields about 3.44% annually.

PowerShares S&P 500 Low Volatility ETF SPLV

Last but not the least, with stock market volatility levels at a record low, sell-offs may be in the cards, especially if Trump doesn’t come up with reforms. This is especially true given the month’s defamed status (in terms of returns). So, investors may have a look at the low volatility ETF SPLV.

Schwab U.S. Dividend Equity ETF SCHD

In a bid to safety, a look at dividend-focused ETFs also makes sense. The fund SCHD measures the performance of high dividend yielding U.S. stocks that have a record of consistently paying dividends. The fund yields 2.83% annually (read: Rate Hike or Not, Dividend ETFs Are Star Investments).

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VANECK-AMT FLM (MLN): ETF Research Reports
 
ISHARS-EM DIV (DVYE): ETF Research Reports
 
POWERSH-SP5 LVP (SPLV): ETF Research Reports
 
ISHARS-MS JA SC (SCJ): ETF Research Reports
 
ISHARS-GL UT (JXI): ETF Research Reports
 
SCHWAB-US DV EQ (SCHD): ETF Research Reports
 
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