A broader market sell-off was witnessed early last week on investors’ concerns about the rapid spread of the highly contagious Delta variant of COVID-19. However, The Goldman Sachs Group, Inc. (GS) equity strategist David Kostin noted in a report yesterday that, “Investors are concerned about the impact on economic growth from the Delta variant, but the new strain should not pose a major market risk.”
All three major stock market indexes closed yesterday’s regular session at record highs, marking gains for five straight trading days, driven primarily by strong corporate earnings. According to a FactSet report, among the S&P 500 companies that have reported second-quarter results as of July 23, 88% beat the consensus EPS estimates, which compares to a 75% five-year average.
The market is expected to continue rallying in the near term, with promising results expected from the big techs this week. Therefore, we think it could be wise to bet on quality ETFs—Invesco QQQ Trust (QQQ), iShares Trust – iShares Russell 2000 ETF (IWM), and ARK ETF Trust – ARK Innovation ETF (ARKK)—that have a high beta. These ETFs have the potential to generate higher-than-market returns in the near term.
Invesco QQQ Trust (QQQ)
As one of the most popular ETFs, QQQ tracks the tech-heavy Nasdaq-100 Index, delivering exposure to companies at the forefront of transformative, long-term themes, such as augmented reality, cloud computing, big data, and electric vehicles.
With $179.24 billion in assets under management, QQQ’s top holdings include Apple Inc. (AAPL) with an 11.37% weighting; Microsoft Corporation (MSFT) at 10%; and Amazon.com, Inc. (AMZN) at 8.46%. It currently has 103 holdings in total. Over the past month, the ETF’s fund flows came in at $1.34 billion. In addition, its 0.20% expense ratio compares favorably to the 0.37% category average.
QQQ pays a $1.74 annual dividend, which yields 0.47% at the prevailing share price. Its average four-year dividend yield stands at 0.73%. Furthermore, its dividends have increased at a 10.1% CAGR over the past three years and 7.6% over the past five years. The fund has gained 17.5% year-to-date and generated 5.5% returns over the past month. It has a 1.02 beta.
It’s no surprise that QQQ has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. In addition, it has an A for Trade Grade, Buy & Hold Grade, and Peer Grade.
iShares Trust – iShares Russell 2000 ETF (IWM)
Launched by BlackRock, Inc. (BLK) in 2000, IWM seeks to track the famous small- cap-focused Russell 2000 Index performance. With1,987 holdings, the fund’s broad basket makes it one of the most diversified funds in the sector.
AMC Entertainment Holdings, Inc. (AMC) has a 0.52% weighting in the fund as its top holding, followed by Intellia Therapeutics, Inc. (NTLA) at 0.35%, and U.S. Dollar at 0.31%. IWM has $65.12 billion in assets under management. Its fund flows came in at $4.96 billion over the past year. The fund’s 0.19% expense ratio is significantly lower than the 0.32% category average.
The ETF pays a $1.90 dividend annually, yielding 0.86% at the current price. Its four-year average dividend yield stood at 1.26%. Furthermore, IWM’s dividends have increased at a 2.6% rate per year over the past five years. The fund has gained 50.7% over the past year and 12.3% so far this year. It has a 1.24 beta.
IWM’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our proprietary rating system. In addition, it has an A grade for Buy & Hold Grade, and B for Trade Grade.
ARK ETF Trust – ARK Innovation ETF (ARKK)
ARKK is an ETF launched and managed by Cathie Wood-led ARK Investment Management LLC. The actively managed fund’s portfolio is focused on companies involved in disruptive innovation in genomics, automation, transportation, energy, artificial intelligence and materials, and shared technology.
The fund has $23.05 billion in assets under management. Its top holdings include Tesla, Inc. (TSLA) with a 9.97% weighting; Roku, Inc. (ROKU) at 6.62%; and Teladoc Health, Inc. (TDOC) with 5.61%. It has 51 holdings in total. Over the past six months, the ETF’s fund flows came in at $3.87 billion. ARKK’s 0.75% expense ratio compares to the 0.50% category average.
The fund pays a $2.04 annual dividend, which yields 1.68% at the prevailing share price. ARKK’s average four-year dividend yield stands at 1.25%. Its dividends have increased at a 182.9% CAGR over the past three years. The fund has gained 54.3% over the past year and 25.1% over the past nine months. It has a 1.56 beta.
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QQQ shares were trading at $361.32 per share on Tuesday afternoon, down $7.17 (-1.95%). Year-to-date, QQQ has gained 15.44%, versus a 17.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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