2 Hot Sector ETFs Soaring To Rank #1 This Summer
The U.S. stock market has started to feel the heat of summer in some corners. While the S&P 500 and the Dow Jones Industrial Average have seen a lazy summer lull so far, the Russell 2000 Index and Nasdaq Composite Index have been burning with impressive gains of 3.6% and 1.8%, respectively, over the past one month. Increased confidence in the U.S. economy as well as a slower-than-expected Fed rate hike path is boosting specific sector stocks. In particular, financials are soaring on a rising rate environment while technology and health care have been the investors’ darlings when it comes to defensive trading. These sectors are likely to witness strong growth for the rest of summer. In fact, the spread out exposure to all market caps or a definite tilt toward small caps might lead to outsized gains. Additionally, U.S.-focused sectors offer investors with protection from the worst of the global turmoil, especially the looming Grexit fears. That being said, there are number of choices in these sectors but looking at the Zacks ETF Rank could help us to pick the likely best. The system looks to take into account a variety of factors, such as industry outlook and expert surveys; and then apply ETF-specific factors (like expense ratios and bid/ask spreads) in order to find the best funds in each segment. Using this system, we have found a handful of ETFs in the hot sectors that have earned themselves a Zacks ETF Rank #1 (Strong Buy) in the latest ratings update, and could thus outperform. In fact, a couple of funds in their respective sectors have seen their Ranks surging to the top hierarchy from #3 (Hold) and could make great summer picks. iShares U.S. Broker-Dealers ETF (NYSEARCA: IAI ) With the prospect of rising rates later in the year albeit at a slower pace, financials will remain on investors’ hot list for the coming months. This is because rising rates would boost income for banks, insurance companies and discount brokerage firms. Additionally, the more volatile but improving market bodes well for exchanges like ICE (NYSE: ICE ), NYSE or CME (NASDAQ: CME ) and those with large investment portfolios. Given this, the broker-dealers corner of the financial segment looks brighter and one way to tap the bullish trend is with IAI. This fund offers exposure to the U.S. investment banks, discount brokerages, and stock exchange firms by tracking the Dow Jones U.S. Select Investment Services Index. The product currently holds 25 securities with double-digit allocation going to Goldman Sachs (NYSE: GS ) and Morgan Stanley (NYSE: MS ). Other firms hold no more than 8.3% of assets. The ETF has a nice mix of all cap securities with 49% going to large caps, 32% to small caps, and the rest to mid caps. It has a certain tilt toward value securities, which tend to be less volatile and offer nice price appreciation opportunities. The fund has accumulated $354.2 million in AUM while sees good volume of nearly 76,000 shares a day. The product charges 43 bps in fees per year from investors and gained 2.2% over the past one month. PowerShares S&P SmallCap Health Care Portfolio ETF (NASDAQ: PSCH ) This ETF has been the clear winner in the broad health care world, returning nearly 23.5% so far this year and up 4.7% over the past one month. This is primarily thanks to strong earnings, merger frenzy, aging population and the Affordable Care Act or Obamacare. The sector’s non-cyclical nature is an advantage in the current environment, where concerns are spiking on global growth, stretched valuations, Greece crisis and uncertainty regarding rate hike. Apart from these, the concentrated exposure to the small cap health care securities is benefiting PSCH given the gradually improving economy. The fund tracks the S&P Small Cap 600 Capped Health Care Index and holds 72 securities in its basket with each holding less than 4.4% share. From an industry look, about one-third of the portfolio is allotted toward health care equipment and supplies followed by health care providers and services (29.2%) and pharmaceuticals (12.6%). The ETF is unpopular, having amassed $233.8 million in asset base and trading in lower volume of about 19,000 shares per day, while charging a relatively low fee of 29 bps a year. Bottom Line These sector ETFs have been the leaders to start summer and look protected from the global turmoil. Given that this trend will continue for the rest of the season, investors should definitely look at these ETFs or the other funds in the sector that have recently seen their Zacks Rank surging to #1. Originally published on Zacks.com