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A health-care worker takes a swab sample from a man at a coronavirus test centre at Rome's San Giovanni hospital on Aug. 18, 2020.REMO CASILLI/Reuters

Investors saw wild swings in their portfolios in recent months amid the economic fallout from COVID-19 and now are bracing for a potential second wave of the pandemic.

The virus’s possible resurgence comes alongside other expected events in the coming months including the U.S. presidential election and a potential COVID-19 vaccine.

Investors should prepare for more uncertainty in the short term, says John Hood, president and portfolio manager at J.C. Hood Investment Counsel Inc. in Pickering, Ont.

“You have to have a strategy for dealing with it,” he says. “Panic is not a strategy.”

Mr. Hood recommends investors look carefully at their portfolio, ensure it’s diversified – and not in areas likely to get hit hard by a second coronavirus wave such as real estate, hospitality, oil and gas, and airlines.

He sold off his bond holdings and has “more cash on hand now than I have had in the last 20 years,” waiting to put it to work.

Gold expected to keep shining

Some of the best-performing ETFs amid the pandemic have been in haven investments such as gold or U.S. Treasuries, which are “safety assets and repositories of panic buying,” says Daniel Straus, head of ETF research and strategy at National Bank Financial Inc.

Although gold’s performance has been “quite eye-popping,” there may be more room for bullion to rise, especially if the second wave gets worse, Mr. Straus says.

“We still are big fans of those assets as ballasts in a portfolio in small amounts, so you can have an asset that zigs when everything else zags,” Mr. Straus says, but adds there “may be a limited amount of headroom” for gains.

Mr. Straus likes the Purpose Gold Bullion Fund (KILO-T), which is backed by physical gold..

Gold ETFs have had a strong run, Mr. Hood adds, but mainly because of the U.S. dollar’s decline. “I think it’s a lousy asset,” he says, adding that “gold at $5,000 [as some gold bugs are forecasting] – that’s not happening.”

However, since investors turn to gold when markets decline, it can be beneficial to hold a little as the pandemic persists, Mr. Hood says.

He recommends larger gold ETFs such as the iShares S&P/TSX Global Gold Index ETF (XGD-T), which holds big global miners.

For U.S. Treasuries, Mr. Straus suggests the BMO Long-Term U.S. Treasury Bond Index ETF (ZTL-NE), which invests in U.S. Treasuries with a maturity of more than 20 years.

Groceries, tech and health care expected to outperform

A few select sectors are expected to benefit once again if a second wave of the pandemic hits, ranging from consumer staples to technology to health care.

Mr. Straus points to two recently launched health care ETFs “that really seem to be in the right place at the right time.”

One is the ETFMG Treatments Testing and Advancements ETF (GERM-A), which invests in biotech companies working on testing and treatments of infectious diseases.

The second is the Pacer Biothreat Strategy ETF (VIRS-A), launched on June 24. It invests in U.S. companies that aim to protect against, endure or recover from biological threats to human health.

“Even in the first few weeks since they’ve launched, they’ve had amazing performance because they focus on the segments of the health care industry that may well be best positioned to deal with our viral realities,” Mr. Straus says.

Technology, which has benefited as people rely on digital services to do everything from online shopping to working from home, “has more room to grow,” says Charlie Spiring, co-founder, chairman and senior investment advisor at Wellington-Altus Private Wealth Inc. in Winnipeg.

Mr. Spiring likes Emerge Canada Inc.‘s new ARK ETFs, which are just more than a year old. “They cover the gamut of what’s changing and growing in the world,” he says.

The Emerge ARK Global Disruptive Innovation ETF (EARK-NE) is an actively managed fund focusing on “technology-enabled new products or services that could potentially change the way the world works,” he says. A few of its top holdings include Tesla Inc., Invitae Corp. and Square Inc.

Emerge ARK series also include the Genomics and Biotech ETF (EAGB-NE); the AI & Big Data ETF (EAAI-NE); the Autonomous Tech & Robotics ETF (EAUT-NE); and the Fintech Innovation ETF (EAFT-NE).

Mr. Spiring also likes the Evolve Cyber Security Index ETF (CYBR-T), given the rapid rise in demand for cybersecurity.

“This is evolving so fast out there. I think there’s no end of [money] that firms, when in jeopardy, will spend to keep hackers away and deal with it,” Mr. Spiring says.

There are other niche technology investments to take advantage of a potential second wave, Mr. Straus adds. The Global X E-commerce ETF (EBIZ-Q), which, as the name suggests, invests in e-commerce companies.

But Mr. Straus recommends pairing it with a more conservative ETF pick, such as consumer staples. One option is the iShares S&P/TSX Capped Consumer Staples Index ETF (XST-T).

“It’s a little bit of a protective position,” Mr. Straus says, noting XST didn’t fall as much as the overall market earlier this year and still participated in the strong recovery to date.

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