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Top ETF Picks For August 2021

The tech sector could continue to extend recent gains, but silver miners don't look too bad here either.

As we wrap up the summer months, the financial markets are beginning to look like they're under a little more pressure than they have been in recent times.

It's looking like the peak GDP growth period has officially past. Treasury yields continue to fall even though inflation rates are above 5%. And let's not forget that the government has hit the debt ceiling and is burning through cash reserves with no resolution in sight.

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Investors, for the most part, don't seem particularly bothered by any of this. Volatility levels remain low and large-cap stocks continue to push towards all-time highs. It seems that as long as the Fed is willing to pump billions of dollars into the economy through asset purchases and keep interest rates at near zero until at least 2023, investors believe there is a soft floor beneath risk asset prices that the Fed will go out of its way to protect.

For that reason, I think conditions still look favorable for further gains in equities, although September could begin to look rough if the Congressional battle over the debt ceiling puts U.S. credit at risk of a downgrade, if not a default. Investors would be wise, however, not to hit the gas completely on risk-seeking. Selective risk taking could produce market-beating returns.

Here are three ETFs I'd be targeting during the month of August.

ProShares S&P Technology Dividend Aristocrats ETF (TDV)

source: ETF Action

source: ETF Action

TDV would be a combination of two different target segments - technology, which has been outperforming the broader market since May, and dividend stocks, which have been collectively underperforming the market over that same time frame.

Tech stocks, I suspect, will continue to do well here despite rich valuations as investors seem willing to return to this sector over and over. Tech was the one sector that never really underperformed at any point during the COVID bear market and has performed well throughout the pandemic recovery. Sure, there was that period from roughly the second half of 2020 throughout the early part of this year where the sector lagged the market, but investors have returned as questions have arisen about the strength of this recovery.

Dividend stocks as a whole haven't performed terribly well. They tend to be overweight in cyclical sectors, especially industrials, financials and some energy. When cyclicals are out of favor with investors, dividend ETFs tend to fall behind. That's exactly what we've seen throughout the summer.

Dividend growth, on the other hand, hasn't done too bad. Despite low yields, investors have still shown a willingness to gravitate towards stocks backed by healthier financials and long track records of dividend growth. In some sense, I think it's offering investors a sense of safety as conditions deteriorate.

TDV offers exposure to both of these groups. The "Aristocrats" in the fund's name is a bit misleading since companies only have to have a 7-year dividend growth streak in order to qualify. The portfolio is also equally-weighted among roughly 40 names, so you don't see the heavy allocations to the Microsofts and Apples of the world that you'd expect to see in a cap-weighted ETF.

Global X Silver Miners ETF (SIL)

source: ETF Action

source: ETF Action

Silver miners haven't done much of anything over the past year and the reasoning behind it is fairly easy to explain. Since silver is very much an industrial metal, its price tends to be correlated with the behavior of cyclical areas of the economy. We saw silver miners do pretty well coming out of the COVID bear market bottom, but have struggled since last summer as investor interest in manufacturing areas of the economy has waxed and waned.

The inflation narrative hasn't helped the story either. Gold, of course, is considered to be more closely tied to inflation risk than silver, but there's still some correlation there for silver. Inflation rates have soared above 5%, which should in a vacuum be bullish for precious metals prices. The Fed has kept driving home this narrative of "transitory" inflation and blames the current high rates on low base effects coming out of the early days of the recovery. Without a real inflation threat (in the eyes of investors at least), gold and silver prices have stagnated.

I'll admit that silver miners could be facing some headwinds if investors appear unwilling to believe that the cyclical recovery has legs. I do, however, believe in the undervalued nature of the sector and the notion that it's finally being backed by stronger fundamentals. Cash flows for both gold and silver miners are improving to the point where there's rally potential regardless of the state of metal prices. This is a bit of a high risk pick in the short-term, but there's significant long-term potential here.

Amplify Transformational Data Sharing ETF (BLOK)

source: ETF Action

source: ETF Action

Blockchain is one of the best-performing market themes this year and momentum could carry this group forward into August as well. The positive sentiment around tech stocks in general will benefit this group, but I think the state of the cryptocurrency market could make this an especially interesting play.

As I mentioned earlier, I'm expecting some increased market volatility as we head into September/October if there appears to be no progress on the debt ceiling front. That could, in theory, send investors fleeing to things, such as Treasuries and gold, but it could also spark a migration towards bitcoin and ethereum. Some circles try to peg cryptocurrency as a "safe haven" in the sense that it avoids some of the more unique risks associated with the financial markets. That clearly isn't the case, but I think an inverse correlation with the direction of stock prices isn't entirely unreasonable.

If a market pullback inspires interest in cryptocurrencies, it could pull blockchain stocks up with it. I expect volatility will remain high within this group regardless, but I like the sentiment right now in this space.

BLOK is also my pick among the blockchain ETFs because it's actively managed. While the prevailing narrative has favored ultra-cheap passively-managed funds for a while, active management still makes a lot of sense, even if the cost is greater, in rapidly evolving industries. This is a case where you want as much flexibility as possible to change the portfolio along with changes in the industry.

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