4 ETFs Surge To Top Rank Ahead Of Q1 Earnings

Though the stock market has made an impressive comeback from the worst nightmare it saw at the start of the year, volatility and uncertainty continue to dominate. This is especially true given that expected Q1 corporate earnings decline for the fourth consecutive quarter.

Amid this sluggishness, many investors still want to bet on a slowly improving U.S. economy, which is backed by a healing job market and rising consumer confidence. The rebound in the oil price from its 12-year low, the Fed’s dovish comments and the resultant weakness in dollar, added to the optimism, raising the appeal for riskier assets.

For these investors, we delved into the Zacks ETF Rank to find the best picks. The system takes into account factors such as industry outlook and expert surveys; and then applies ETF-specific factors (like expense ratios and bid/ask spreads) to spot the best funds in each and every corner of the space. Using this system, we have picked a handful of ETFs that earned a Zacks ETF Rank #1 (Strong Buy) in the latest ratings update, and could thus outperform.

Since earnings growth is expected to be negative for 11 of the 16 Zacks sectors, we have focused on four low-risk, broad ETFs rather than specific sectors. Each of these funds has seen their rank surge to the top hierarchy from #3 (Hold) and could be great picks this earnings season.

Vanguard Mid-Cap Value ETF (VOE - ETF report)

Investors seeking to participate in the growing economy, but wary of soft earnings should consider mid-cap stocks in the basket form. This is because mid caps are arguably safer options allowing both growth and stability simultaneously in a portfolio. These middle-of-road securities have the potential to move higher in turbulent times when compared to large and small caps. Further, honing in on value securities in this capitalization level ensures safety to investors. Value investing includes stocks with strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market.
 
In particular, VOE seems an exciting pick heading into the earnings season. The fund tracks the CRSP US Mid Cap Value Index, charging investors just 9 bps in annual fees. It holds 208 stocks, which are well spread across each component as none of these holds more than 1.3% share. Financials takes the top spot with one-fourth share while consumer goods, industrials, consumer services and utilities round off to the next four spots with a double-digit allocation each. It is one of the popular and liquid ETFs in the mid cap space with AUM of $4.5 billion and average daily volume of 302,000 shares. The ETF has added 0.2% in the year-to-date time period.
 
WisdomTree MidCap Dividend Fund (DON - ETF report)
 
Dividend-focused ETFs have been riding high this year on investors’ drive for income amid heightened uncertainty in the stock market. This is because dividend-paying securities are the major sources of consistent income when returns from the equity market are at risk. Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less immune to the large swings in stock prices. Further, longer-than-expected interest rates have made this corner a hot investment area. As a result, DON seems an interesting choice for the coming months..
 
This ETF provides exposure to the mid-cap segment of the U.S. dividend paying stocks by tracking the WisdomTree MidCap Dividend Index. The fund has been able to manage assets of $1.6 million and trades in a moderate volume of 80,000 shares a day on average. Expense ratio came in at 0.38%. Holding 402 stocks in its basket, the product is widely diversified across each component with each holding less than 1.8% of assets. From a sector look too, the fund is pretty well spread out with financials, consumer discretionary, utilities and industrials taking the double-digit exposure each. DON returned 11.1% so far this year.

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Disclosure: None.

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