ETFs
5 Must-Have ETFs for the Second Half of the Year
After a stellar first half, Wall Street extended its rally into the second half, with the S&P 500 and Nasdaq hitting their 34th and 24th record closes of 2024, respectively. The S&P 500 climbed 2% last week, and the Dow Jones Industrial Average gained 0.7%. The Nasdaq Composite Index rose 3.5%, marking the largest weekly percentage gain since the period ended April 26, according to Dow Jones Market Data.
The information technology sector hit an all-time high while the communications sector hit its highest level since 2000 as artificial intelligence (AI) continued to dominate the market. Enthusiasm for AI, coupled with upcoming rate cuts, will push stocks higher in the second half of the year. Strong corporate earnings will also provide strength (read: 5 ETF Predictions for the Second Half of 2024).
While there are several options to play on bullish trends, we present five ETFs that should benefit more than others given their strong fundamentals. Invesco AI ETFs and Next-Generation Software IGPT, Roundhill Magnificent Seven ETF MAGS, Schwab US Large-Cap Growth ETF SCHG, Select Sector Consumer Discretionary SPDR Fund XLY and WisdomTree US LargeCap Index SPE.
The rise of AI
To capitalize on the rise of artificial intelligence, many companies are investing huge amounts in the technology sector and beyond. The expansion of applications of artificial intelligence promises to open up new growth opportunities. According to a new report by Grand View Research, the global artificial intelligence market is expected to witness a CAGR (2024-2030) of 36.6% to reach $811.75 billion by 2030.
While technology remains a hot sector, utilities and commodities like copper and uranium remain an untapped sector. Investors should consider investing in ETFs targeting this sector or in broad areas of AI (read: ETFs to Make the Most of the AI-Powered Utilities Sector).
Upcoming rate cuts
The latest data points to a slowing economy, raising fresh hopes for a rate cut in September. The U.S. services sector contracted in June at its fastest pace in four years. At the same time, job growth slowed slightly in June and the unemployment rate hit its highest level in two and a half years. Wage increases have also slowed. According to the CME’s FedWatch tool, the probability of the U.S. central bank easing monetary policy in September has increased to 79% from 66% before the employment data.
Low rates reduce the cost of borrowing, which is often needed to finance business expansion, and thus stimulate growth. This can have a positive impact on sectors such as real estate, consumer discretionary and financial services, which are generally sensitive to changes in interest rates. In particular, growth stocks, with their high yield potential, become more attractive to investors in this environment, which stimulates demand and, consequently, their prices.
The story continues
Profit growth
According to Earnings Trends, the second-quarter earnings season is expected to be marked by continued resilience and a steadily improving outlook. S&P 500 earnings are expected to increase 8.6% from the same period last year, with revenue up 4.7%. This will be the highest earnings growth rate since the 9.9% growth rate in the first quarter of 2022. Energy sector earnings growth is on track to turn positive in the second quarter after remaining in negative territory for the previous four quarters.
ETF Choice
Invesco AI and Next Generation Software ETF (IGPT)
Invesco AI and Next Gen Software ETF provides exposure to companies with significant exposure to technologies or products that contribute to the future development of software through direct revenues. It tracks the STOXX World AC NexGen Software Development Index and holds 101 stocks in its basket. The Invesco AI and Next Gen Software ETF has accumulated $385.7 million in its asset base and trades an average of 73,000 shares per day. It charges 60 bps in fees per year to investors and is ranked #1 in the Zacks ETF Rank (Strong Buy) (Read: Top-Ranked ETFs That Outperformed the Market in the First Half of the Year).
Roundhill Magnificent Seven ETF (MAGS)
Roundhill Magnificent Seven ETF is the first-ever ETF to offer investors weighted exposure to the “Magnificent Seven” stocks. It has accumulated $578.3 million in assets and charges 29 bps in fees per year. MAGS trades an average of 200,000 shares per day (read: 5 Sector ETFs That Beat the Market in Q2).
Schwab US Large Cap Growth ETF (SCHG)
With $31.2 billion in assets under management, the Schwab US Large-Cap Growth ETF tracks the Dow Jones US Large-Cap Growth Total Stock Market Index. It holds 251 stocks in its basket, with a heavy concentration on the top three companies. From a sector perspective, information technology leads the way with a 46.1% share, while communication services, consumer discretionary, and health care each have double-digit exposure in the portfolio. The Schwab US Large-Cap Growth ETF charges 4 bps in annual fees and averages about 1.3 million shares per day.
Consumer Discretionary SPDR Fund (XLY)
The Consumer Discretionary Select Sector SPDR Fund provides exposure to the broad consumer discretionary sector and tracks the Consumer Discretionary Select Sector Index. It holds 52 stocks in its basket, with key holdings in general retail, hospitality, restaurants and leisure, specialty retail, and automotive with double-digit allocations to each. The Consumer Discretionary Select Sector SPDR Fund is the largest and most popular product in this space, with $20 billion in AUM and an average daily volume of about 3 million shares. It charges 9 bps in annual fees and is ranked #3 on the Zacks ETF (Hold) with a medium risk outlook.
WisdomTree US LargeCap Index (EPS)
The WisdomTree US LargeCap Index provides exposure to earnings-generating companies in the large-cap segment of the broader U.S. equity market by tracking the WisdomTree US LargeCap Index. Holding 500 stocks in its basket, the fund is well-allocated across a number of sectors, with information technology, financials, communication services, and health care each holding double-digit exposure. The ETF has accumulated $925.1 million in its asset base and charges 8 bps in annual fees. Volume is light, with about 44,000 shares trading per day. EPS has a Zacks ETF Rank #3 (Hold) with a medium risk outlook.
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SPDR ETF (XLY) for Consumer Discretionary Sectors: ETF Research Reports
WisdomTree US LargeCap ETF (EPS): ETF Research Reports
Schwab US Large-Cap Growth ETF (SCHG): ETF Research Reports
Roundhill Magnificent Seven ETF (MAGS): ETF Research Reports
Invesco AI and Next Gen Software ETF (IGPT): ETF Research Reports