The COVID-19 pandemic has sent global equity markets spiralling downward. Although the markets have made a comeback in the last few trading sessions, it’s quite possible for them to remain volatile in the near-term at least until the virus threat is under control.
So where do investors park their funds right now? Several industries in the retail, travel and tourism sectors have seen a huge decline in stock prices. Shares of Air Canada, Lightspeed, Delta Air Lines are trading 62%, 65% and 62% below their 52-week highs, respectively.
In these uncertain times, Canadians can look to invest in iSXIUhares S&P/TSX 60 Index ETF (TSX:XIU), the largest and most liquid ETF in the country. The XIU is currently trading at $21.71 at writing, which is 20% below its record high. This ETF has exposure to 60 of the largest Canadian companies.
Its top holdings include Royal Bank of Canada, Toronto-Dominion Bank, Enbridge Inc, Canadian National Railway and Bank of Nova Scotia, accounting for 7.9%, 6.8%, 5.1%, 5%, and 4.4% of the ETF. The financial sector accounts for 34.7% of this index, followed by energy, materials, industrials and information technology, accounting for 14.5%, 12%, 11.1% and 7.7%, respectively.
XIU provides diversification that’s essential in the current environment. Further, it also has a forward yield of 3.2%, making it attractive for income and dividend investors. For investors who don’t have the time and expertise to pick individual stocks, ETFs provide an excellent option to grow long-term wealth.
Warren Buffett’s Berkshire Hathaway is another excellent option
Investors seeking diversification can also look at buying shares of Berkshire Hathaway (NYSE:BRK.A)(NYSEBRK.B). This Warren Buffet-owned company has returned 36% in the last five years and 145% in the last 10 years.
This company has managed to crush index returns time and again, outperforming the S&P 500 Composite Index by a stellar 2,724,278% in the last five-and-a-half decades. The insurance giant is one of the top companies in the world, providing diversification as it continues to hold large stakes in other publicly listed companies.
At the end of 2019, Berkshire Hathaway owned a portion of some of the top companies south of the border such as Apple, Amazon, Coca-Cola, American Express, JP Morgan Chase and Moody’s, among others. It also owns stakes in two Canadian companies, Suncor Energy and Restaurant Brand International.
Further, Berkshire Hathaway had $125 billion in cash and short-term investments, which could be used to acquire or increase position in several undervalued companies due to the recent pullback.
Despite its stellar rise in stock price over the last few years, however, Berkshire Hathaway continues to trade at an attractive valuation. It has a forward price-to-earnings ratio of 13.77.
However, analysts expect earnings to rise at an annual rate of 23.3% in the next five years. Berkshire’s price-to-sales ratio is 1.38, while its price-to-book ratio is 1.06, making it one of the top stocks to own in the current market.
As stated, investors can expect equity markets to be range-bound in the upcoming quarters. But it’s almost impossible to time the markets, which means the current pullback offers investors an opportunity to build long-term wealth.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon, Apple, and Canadian National Railway. The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), Canadian National Railway, Delta Air Lines, and Moody's. The Motley Fool owns shares of Lightspeed POS Inc. The Motley Fool recommends BANK OF NOVA SCOTIA, Canadian National Railway, and RESTAURANT BRANDS INTERNATIONAL INC and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short June 2020 $205 calls on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.