Buy the Dip in These Top-Ranked ETFs

Global stocks have had a rocky beginning to the year. Initial panic over the disruptive effects of artificial intelligence (AI) on traditional business models sparked selloffs across several sectors. Soon after, the outbreak of war in the Middle East added another layer of uncertainty to financial markets.

Despite these developments, major indexes largely held steady until recently. State Street SPDR S&P 500 ETF Trust SPY lost about 0.4% so far this year, State Street SPDR Dow Jones Industrial Average ETF Trust DIA is up about 0.4% and the Nasdaq-100-based ETF Invesco QQQ Trust, Series QQQ has lost about 1.9% in the year-to-date frame.

Lucrative Buying Opportunity Despite High Valuation?

Strategists at Goldman Sachs noted that equity returns have broadened across regions and investment styles. However, this wider participation has pushed valuations above historical norms. According to the bank’s team, all global sectors are now trading at premiums relative to their 20-year averages, per Bloomberg, as quoted on Yahoo Finance.

In a separate appearance in Australia, Goldman Chairman David Solomon remarked that he has been surprised by the relatively “benign” response of financial markets to the Middle East conflict. He cautioned, however, that it could take several weeks to gain clearer insight into how the situation will unfold, the same Bloomberg article noted.

Per analysts, global conflicts historically haven’t disrupted markets for very long, per CNN, as quoted on Yahoo Finance. While headlines about war can be scary, stocks historically have been able to shrug off those fears. Still, DIA lost about 1.7% over the past five days, SPY was off about 1% and QQQ lost about 0.6%.

According to Goldman Sachs strategists, any dip created by the ongoing market crisis should be considered as a buying opportunity. This dip should not mark the start of a bear market, as mentioned in the Bloomberg article.

ETFs to Buy

Against this backdrop, below we highlight a few exchange-traded funds (ETFs) that have lost in the recent past and may mark rebound ahead.

iShares U.S. Technology ETF (IYW) – Up 3.4% over the past six months, down 6% over the past three months

Tech stocks have been hit hard lately due to the AI payoff scare. However, the AI mania is still in fine fettle and the lure for tech stocks is still present. IYW was off 2.4% over the past five days.  

State Street SPDR S&P Semiconductor ETF (XSD) – Up 20.1% over the past six months, up only 0.4% over the past three months

AI and data center demand is booming, driving strong long-term growth for the semiconductor industry.Note that memory chip supply remains tight, supporting higher prices and improving margins for semiconductor companies. ETF XSD has lost about 6.7% over the past seven days.

Vanguard High Dividend Yield Index Fund ETF Shares (VYM) – Up 12.2% over the past six months, up 6.3% over the past three months

The demand for dividends should always be high amid volatile market backdrop. The ETF VYM has lost about 1% over the past five days.

iShares U.S. Medical Devices ETF (IHI) – Down 3.5% over the past six months, down 6.6% over the past three months

Healthcare stocks are often viewed as defensive plays. The ETF has been beaten-down in the recent past and may rebound in the coming days. The ETF IHI has lost about 1.7% over the past five days.

Vanguard Financials Index Fund ETF Shares (VFH) – Down 3.2% % over the past six months, down 3.6% over the past three months

The sector benefits from higher investment banking fees and trading income. Favorable rate environment, and loan demand also led to the revenue growth. VFH has lost 1.1% over the past five days.

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This article originally published on Zacks Investment Research (zacks.com).

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