2 ETFs That Could Make Big Moves Before Year’s End

The diversification that investors can achieve with a few well-chosen exchange-traded funds (ETFs) makes them excellent tools for building wealth in the stock market. It’s even better when there are specific short-term catalysts that could benefit an ETF’s holdings.

Here are two ETFs that can help an investor take advantage of a rebound in China’s real estate and economy.

1. Vanguard Real Estate ETF

Rising interest rates and inflation have been major headwinds for the housing market over the past few years. The Vanguard Real Estate ETF (VNQ -1.02%) holds more than 150 positions, many of which are real estate investment trusts (REITs) that are required to distribute at least 90% of taxable income to shareholders in the form of dividends.

Even with rising interest rates, the ETF is up 10% over the past three months. This comes after the Consumer Price Index for June rose at its slowest pace in three years. If this trend continues, the Federal Reserve could reverse rate hikes, which would drive interest rates lower and send this ETF even higher.

The Vanguard Real Estate ETF pays a high trailing dividend yield of 3.93%, which is above the historical average of 3.08%. These dividends come from a wide range of real estate markets represented in the fund, including data center sites, telecommunications towers, timber, office buildings, hotels, retail and self-storage.

Over the past 20 years, a $10,000 investment in the fund would have grown to $43,000 with reinvested dividends. This means an annual return of 7.7%.

Here are the top 10 holdings in the fund as of June 30, 2024 and their percentage share:

• Vanguard Real Estate II Index Fund Institutional Plus Shares (13.41%)
• Prologue (6.73%)
• American Tower (5.88%)
• Equinix (4.53%)
• Welltower (3.76%)
• Simon Property Group (3.20%)
• Digital Realty Trust (3.08%)
• Real estate income (2.95%)
• Public storage (2.95%)
• Crown Castle International (2.75%)

As with other Vanguard ETFs, this ETF has a very low expense ratio of 0.13%, meaning it will cost an investor just $1.30 per year for every $1,000 invested. It’s always possible that interest rates will remain high, but in that scenario, investors can still use this ETF to boost their passive income and cash in on the $132 trillion U.S. housing market.

2. KraneShares CSI China Internet ETF

China’s economy has gone through a crisis in recent years. Sluggish trends in consumer spending and increased competition among top retail companies have sent shares of China’s biggest e-commerce stocks to bargain valuations.

The KraneShares CSI China Internet ETF (KWEB 0.65%) provides exposure to leading companies in China’s $2.1 trillion online retail market. Most of the fund’s top holdings trade at a conservative price-to-earnings ratio of close to 10. That’s cheap, given that the Wall Street consensus estimates long-term earnings growth to be 6% to 36% on an annual basis.

After collapsing in 2022, this ETF has traded roughly flat over the past year and could be poised for a comeback.

Here are the top 10 holdings of the fund as of August 1, 2024 and their percentage weighting:

• Tencent Holdings (10.64%)
• Alibaba Group (10.29%)
• PDD Holdings (7.96%)
• Meituan (7.45%)
• JD.com (5.68%)
• NetEase (4.43%)
• Tencent Music (4.07%)
• Baidu (4.02%)
• KE Holdings (3.81%)
• Kuaishou technology (3.79%)

China’s economy can be volatile due to the uncertainty of the regulatory environment, but that’s why now is a great time to invest in China. Updated valuations relative to future growth prospects more than compensate investors for the risks.

Moreover, China’s economy is showing signs of turning around. For example, Alibaba reported 8 percent year-on-year growth in the quarter ended March, driven by a 4 percent increase in revenue from its Taobao and Tmall shopping group. This was an improvement from the 2% year-over-year increase in the previous quarter. JD.com also reported growth in users and shopping frequency, with revenue up 7% year-on-year.

The fund has an expense ratio of 0.70%, which works out to $7 in annual costs for every $1,000 invested. Overall, China’s tech sector offers incredible value right now, which could lead to nice returns.