Right from the beginning of 2020, global events have been pulling the strings of the investing world. While negative stories included Middle East tensions and outbreak of Coronavirus, the signing of the U.S.-China phase-one trade deal was a positive one. The broader market remained a bit volatile, having reacted to such issues. The S&P 500 has gained about 2% so far this year, after a stellar 2019.
The road ahead from here would be mixed with the uncertainty regarding the U.S. presidential election, the fate of Brexit, and the level of execution of the U.S.-China trade deal. Global growth momentum is also showing signs of slowdown, though worldwide monetary policy easing should continue to support the stock market (read: Global Policy Easing Cycle Set in Motion: ETFs to Win).
Against this backdrop, we highlight five top sectors and pick the top industries from there. We also mention ETFs from those wining industries that could be great picks in 2020.
Construction – Home Builders – iShares U.S. Home Construction ETF (WA:ITB)
The construction sector currently has a Zacks Rank of #1. Under this sector, home builders currently belong to a favorable Zacks industry (placed at the top 20% of 250+ industries). Groundbreaking on new U.S. homes surged to a 13-year high in December. U.S. housing starts spiked 16.9% to a seasonally adjusted annual rate of 1.361 million homes in December, the highest level since December 2006.
Existing-home sales, which regulate the major share of the U.S. housing market, recoiled in December, despite the inventory hitting a 20-year low (read: Homebuilder ETFs Shining in 2020: Will This Continue?)
A sharp decline in the 30-year fixed mortgage rates last year amid Fed rate cuts boosted the sector. The Zacks Rank #3 (Hold) fund has spiked 8.6% this year, after gaining 49.7% the past one year.
Technology – Software – SPDR S&P Software & Services (NYSE:XSW) ETF XSW
The sector currently has the second-highest Zacks Rank of 2. Under this sector, software space looks to be greatly positioned. The space comes froma favorable Zacks industry (top 20%). Global IT spending is set for a revival in 2020 with growth forecast of 3.7%, primarily due to enterprise software spending, per Gartner. The fund has a Zacks Rank #1 (Strong Buy). The fund is up 9 4.6% this year and has gained 31.9% past year.
Medical – Service Providers, Pharma & Biotech – Health Care Select Sector SPDR Fund XLV
The sector currently has Zacks Rank #3. Inside the sector, nursing homes (top 9%), hospitals (top 20%), large-cap pharma (top 20%) and biotech (top 33%) have a favorable Zacks Rank.
The fund XLV, which has a Zacks Rank #2 (Buy), has 32.66% exposure to pharma stocks, followed by 25.48% to Health Care Equipment & Supplies, 20.3% to Health Care Providers & Services and 13.6% to Biotechnology. The fund is up 2.6% this year and has advanced 17.6% in the past year (read: Healthcare ETFs in Focus on UnitedHealth (NYSE:UNH)'s Q4 Earnings).
Retail – Home Furnishing, Restaurants, Automotive – Vanguard Consumer Discretionary ETF (HN:VCR)
The sector has a Zacks Rank #4. In the retail space, industries like home furnishing (top 32%), restaurants (top 35%), Automotive - Retail and Whole Sales (top 7%) – have a favorable Zacks Rank.
The fund VCR, which has a Zacks Rank #2, has 12% exposure to restaurants, 10.5% to Home Improvement Retail, 2.8% to homebuilding, 3.6% to automotive retail, 4.1% to General Merchandise Stores. The fund VCR is up 1.2% this year and has added 20.9% in the past year.
Business Services – Financial Transaction Services – ETFMG Prime Mobile Payments ETF IPAY
The sector takes the fifth spot while the industry (which is belonged to the sector) comes from a favorable Zacks industry (top 22%). The Financial Transaction Services industry is part of the Financial Technology or FinTech space. The industry includes card and payment processors, mobile payments, ATM service providers and so on (read: Play These ETFs on Visa-Plaid Deal).
Exponential rise in penetration of smartphones, growing adoption of mobile payments in emerging countries, and rise of the m-commerce industry is expected to drive the growth in the global mobile payments industry in 2020. The fund has gained 5% this year and was up 37.6% in the past year.
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SPDR S&P Software & Services ETF (XSW): ETF Research Reports
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
Health Care Select Sector SPDR Fund (XLV): ETF Research Reports
ETFMG Prime Mobile Payments ETF (IPAY): ETF Research Reports
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Zacks Investment Research