In 2021, the world started emerging from the coronavirus pandemic as most countries began to deliver vaccine shots. Most countries, like the United States, Switzerland, and the UK started to upgrade their economic forecast for the year as the number of new coronavirus cases declined.
The processes were reflected in the performance of the stock market, with main indices rising. This article will look at some of the best ETFs to buy during the pandemic recovery process.
SPDR S&P Banking ETF (KBE)
The banking sector was adversely affected by the coronavirus pandemic as more people and companies defaulted on their obligations. This pushed many banks to declare billions of dollars worth of provisions for bad credit.
At the same time, the Federal Reserve responded by lowering interest rates to near zero and launching a major quantitative easing program that added more than $4 trillion of liquidity to the market. This led to lower short and longer-term rates, which affected the banks’ margins. Share prices of most banks declined sharply in 2020.
The situation changed in 2021 as banks became among the best-performing sectors. For one, banks started to unpack the loss provisions they made in 2020 and transferred them into profits. At the same time, the economy started to rebound, helped by the large stimulus package. This led to more demand for loans and fewer defaults. For large investment banks, the volatility in the market led to better trading revenue.
Banks also benefited from the overall positive economic data since it sent a sign that the Fed would start tightening. In June, the regulator confirmed that it will start hiking rates in 2023. This is positive for banks since it means that they will make more money through interest.
KBE vs S&P 500
As such, the SPDR Banking ETF is an ideal recovery ETF to invest in. It is made up of the leading banks in the US that are part of the S&P 500 index. The biggest constituent companies in the index are Northern Trust, Wells Fargo, Bank of New York Mellon, Bank of America, and Signature Bank. It has an expense ratio of 0.35%.
Vanguard Energy ETF (VDE)
The energy sector was also one of the worst-affected during the coronavirus pandemic as demand dried out. The world was oversupplied with most energy sources like crude oil. At some point, the price of oil did the unthinkable and declined below $0 for the first time.
In response to the weak oil prices, many companies in the sector decided to get lean. Firms like BP and Royal Dutch Shell paused explorations while others merged. Other companies announced mass layoffs to save cash. As a result, the oil companies that remained were relatively leaner than they were before the pandemic.
With the world economy rebounding, the demand for oil has jumped, pushing oil prices to the highest level in years. As a result, investors have jumped back to the energy sector, which has pushed some of the companies’ shares higher.
The Vanguard Energy ETF is one of the best-known funds that track companies in the sector. By mid-July 2021, the fund was up over 40%, outperforming the S&P 500, which was up by more than 15%.
VDE vs S&P 500
The fund has an expense ratio of 0.10%, would and its net assets exceed $6.3 billion. Some of the biggest companies in the fund are firms like ExxonMobil, Chevron, ConocoPhilips, Williams, and Valero Energy. The ETF has 102 constituent companies.
Vanguard Consumer Discretionary Fund (VCR)
Consumer discretionary is a sector that focuses on products that are considered to be non-essential. For example, while food is an essential item, a product like a Gucci watch is not necessary.
Some sections of the consumer discretionary sector were affected by the pandemic as more people stayed at home. This meant that people didn’t go out to Starbucks or book trips using companies like Booking and TripAdvisor. As a result, many companies in the industry decided to cut costs and be more nimble.
With the global economy recovering, some of these companies are set to do well. Furthermore, people are expected to go out more and use some of the savings they accumulated during the lockdown.
VCR vs S&P 500
Therefore, having exposure to this growing sector makes sense. The Vanguard Consumer Discretionary Fund gives you a good way to invest in some of the best companies in the sector. It is made up of 315 companies, with the biggest ones being Amazon, Tesla, Home Depot, McDonald’s, and Starbucks, among others. It is a relatively cheap fund with an expense ratio of about 0.10%.
VanEck Vectors Gaming ETF (BJK)
The gaming and gambling sector did well in 2020 even as many casinos were forced to close their premises since they are viewed as being non-essential businesses. This performance was mostly due to the growth of online gaming. Indeed, companies like Fanduel and Draftkings achieved multibillion-dollar valuations during the pandemic.
Fortunately, the industry is expected to keep growing as the world’s economy reopens. For one, many casino companies have already invested in online gaming. And, there is a possibility that more American states will start embracing sports betting.
VanEck Vectors Gaming ETF vs S&P 500
Therefore, the VanEck Vectors Gaming ETF provides you with good exposure to some of the best players in the industry. The top companies in the fund are Evolution, Flutter Entertainment, Las Vegas Sands, Galaxy Entertainment, and VICI Properties. Some of these firms are based abroad, which is a beneficial factor for investing in the fund.
The coronavirus pandemic and the lockdowns that emerged were good for companies in many industries. For example, technology companies like Zoom Video and Slack did well as demand rose. This was beneficial for ETFs that track growth companies. With the economy recovering, we believe that the four reopening-ETFs that we have mentioned will keep doing well.