Forget China, Buy These Domestic-Focused ETFs Instead

By | August 18, 2015

Scalper1 News

China has been at the height of volatility throughout this year. While the economy has been reeling under pressure for long given the protracted slowdown in the domestic manufacturing sector, credit crunch and a property market slowdown, its stock market has been riding wild on overvaluation concerns. If this was not enough, the nation shook the global investing arena in mid-August by devaluating its currency by 2% so that it can support its waning exports. As per barrons.com , the Chinese government viewed yuan as an extremely strong currency. Given the looming Fed policy normalization and its depreciating impact on a basket of currencies, any shift in yuan ‘from market expectations’ seems unreasonable. However, such an epic move in the Chinese currency market hit almost every asset class. Though the Chinese government finally gave the currency a lift to soothe the jittery investors, the panic-stricken sentiment is yet to cool down. So, it’s better to look away from China and concentrate on the domestic economy as the U.S. made plenty of sound economic releases lately. Below we highlight three ETFs to benefit from a decently expanding U.S. SPDR S&P Retail (NYSEARCA: XRT ) U.S. retail sales gained ground in July having grown 0.6% on increased purchase of an array of products and services. The data marked considerable improvement from the June reading of flat sales (and in fact 0.3% decline gauged preliminarily). This gives cues of a solidifying U.S. economy since the start of the third quarter as both job gains and consumer spending remain impressive. The trend can be very well played by a host of retail ETFs. Investors can take a look at the largest retail ETF XRT. This fund consists of 104 stocks, the top holdings being Netflix (NASDAQ: NFLX ), Amazon (NASDAQ: AMZN ) and Advance Auto Parts (NYSE: AAP ). The fund’s gross expense ratio is 0.35%. The $1.11 billion-fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. It was up 0.8% in the last five days and 1.6% in the year-to-date frame (as of August 14, 2015) RBA American Industrial Renaissance ETF (NASDAQ: AIRR ) After retail numbers, the U.S. economy gave a sweet surprise to investors by posting a solid industrial output data for July. Industrial production grew at its best clip in eight months in July as auto production jumped. Motor vehicle production skyrocketed 10.6% last month representing the steepest jump since September 2009. Barring autos, manufacturing ticked up 0.1% in July. Overall, July manufacturing growth of 0.6% breezed past the June reading of 0.1% and economists’ expectations (gauged by Reuters ) of 0.3%. In any case, the U.S. Industrial sector is due for a trend reversal in the coming days mainly to reflect the reduced wage differential between developed and emerging economies. Rising wages in emerging countries and sluggish rise in hourly wages in developed nations have gradually been filling the gap. This should benefit the industrial ETF AIRR. The 42 stock-fund is equal-weighted in nature. Comfort Systems USA (NYSE: FIX ), US Ecology (NASDAQ: ECOL ) and Douglas Dynamics (NYSE: PLOW ) are top three holdings of the fund each with over 3% weight. This $56.3 million-ETF charges 70 bps in fees. The fund has lost about 7% so far this year and but was up 1.4% in the last five trading sessions. iShares Russell 2000 Value ETF (NYSEARCA: IWN ) Apart from strong retail and manufacturing data, the producer price index, job and housing data were all upbeat. This makes the case for a domestically-focused equity play stronger. Investors should note that small-cap stocks better reflect the U.S. economic growth as these are less exposed to foreign economies. Moreover, a stronger greenback presently makes large-cap U.S. stocks a little vulnerable; while small-caps are best-suited for this type of scenario. Investors can benefit from this scenario by investing in small-cap value ETF IWN. Notably, a sudden lift in value quotient in the market thanks to the rout caused by the Chinese currency episode makes a value ETF a better choice than the growth one. The 1,316 stocks-fund has about $5.80 billion in AUM. No stock takes more than 0.5% weight in the fund, suggesting low concentration risk. Sector wise, this ETF is heavy on financials (42.7%) followed by industrials (12.2%) and consumer discretionary (10.8%). The fund charges 25 bps in fees and has a Zacks ETF Rank #3 (Hold). In the last five trading sessions (as of August 14, 2015), the fund added about 1%; while it is down over 3% so far this year. Original Post Scalper1 News

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