After a horrendous sell-off in the first two months of 2016, the third month started on a solid footing with Wall Street seeing the best day in a month. Losers turned leaders as the downtrodden financial and tech stocks ricocheted on cues of an improving U.S. economy. Impressive U.S. factory and construction data were behind this newfound optimism.
While the S&P 500 gained about 2.4% and Dow Jones Industrial Average added over 2.1%, about a 4% spike in Apple (NASDAQ:AAPL) shares led the Nasdaq Composite to return about 2.9%, making March 1 the best day on the bourses since August 2015. So far this year, both the S&P 500 and the Dow Jones indices are down 3.2% each while the Nasdaq Composite is off 6.4%.
In any case, March is historically known for stellar returns. The average return of the S&P 500 was 1.06% in March, from 1950 to 2015. There were 42 years of a green March while returns were in the red only in 24 years. As per moneychimp.com, only December, April and November beat out March in terms of returns.
Of course, deep-rooted concerns over global growth worries and oil price declines can't be ignored. But with such a heavy sell-offs suffered year to date, chances are high that this March will finally see some relief and end in the green.
Whatever be the case, investors might want to know about the ETF areas that are best suited for the month. For them, below we highlight a few ETFs - some that offer safety and others that have the potential to grow in this rocky environment.
Market Vectors Preferred Securities ex Financials ETF (NYSEARCA:PFXF)
Since a flight to safety has put a lid on bond yields, investors' thirst for yield can be satiated by investing in preferred stock ETFs. These are hybrid securities having the characteristics of both debt and equity. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds. Even if rates rise, an extremely strong yield will allow investors to beat out the benchmark Treasury yields.
The preferred stock fund - PFXF - is heavy on REITs (33.5%) and Electric (22.5%) industries. The fund is up 2.2% year to date (as of March 1, 2016) while its 30-Day SEC yield is 6.26%.
PowerShares Dynamic Building & Construction Portfolio ETF (NYSE:PKB)
The industrial sector enjoys a seasonal benefit in March. Also, the space gained investors' attention afresh after a reading of the U.S. manufacturing sector impressed investors to start the month. If this was not enough, U.S. construction spending expanded to the highest level since October 2007.
All these put this construction ETF in focus. The fund has considerable exposure in homebuilding, which is another surging sector. PKB is down 4.2% so far this year, but added over 6.8% in the last one month. PKB has a Zacks ETF Rank #2 (Buy).
PowerShares KBW Property & Casualty Insurance ETF (NASDAQ:KBWP)
Since upbeat U.S. data once again sparked off rate hike talks, 10-year Treasury bond yields jumped 9 bps in a single day to 1.83% on March 1. If the trend continues, financial and insurance ETFs would benefit. While the financial sector is presently facing issues with the potential default in the energy sector, we are banking on this insurance ETF. KBWP with a Zacks #2 ETF is down 2% year to date, but added 2.7% in the last one month.
WisdomTree Emerging Markets Equity Income ETF (NYSEARCA:DEM)
Investors should note that the emerging markets are making a comeback. Though their fundamentals are not too sound, cheaper valuation is probably the key to their recent success. Via DEM, investors will get exposure to the emerging markets and simultaneously enjoy strong dividend income of about 5.36% annually. Even if the fund succumbs to a sell-off, this market-beating yield would make up for the capital losses to a large extent. The fund is heavy on Taiwan (24.7%) and China (14.1%). DEM is up 1.2% so far this year. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk.
Victory CEMP US Small Cap High Dividend Volatility Weighted Index ETF (NASDAQ:CSB)
Risk-on sentiments, though still to be full-fledged, are back in the market. Hence, U.S. small-cap equities and ETFs are likely to gain ground. However, we would suggest investors to practice a defensive approach even in this segment.
It's better to go for an ETF like CSB, which consists of the highest 100 dividend yielding stocks of the CEMP US Small Cap 500 Volatility Weighted Index. After choosing the highest dividend yielding stocks, these are weighted on their standard deviation (volatility). Probably due to this quality exposure, this small-cap ETF has lost just 0.6% in the year-to-date frame (when small-caps are being thrashed). In the last one month, the fund added 5.4%.