Sector ETFs Standing Tall In Current Turmoil

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September 14, 2015 3:35pm NYSE:FDN NYSE:KBWP

etfsSweta Killa:  Marked by high levels of volatility and uncertainty, the second half of 2015 is looking precarious for the U.S. stock market. This is primarily thanks to the stock bubble in China that continues to spook the markets across the globe.


The major U.S. benchmarks – S&P 500, Dow Jones Industrial Average and Nasdaq Composite Index – are in red to date since the start of the second quarter.

Worries over China intensified last month with the devaluation of its currency that will likely hurt trade across the globe.
The move also accelerated the slump in commodities as well as emerging market currencies, raising the question over the health of the world’s second-largest economy and its repercussions on the global economy.

Adding to the woes are plunging oil prices, a slowdown in Japan, sluggishness in Europe, technical recession in Canada and weak emerging markets.

Further, uncertainty surrounding the first rate hike in the U.S. in almost a decade is making investors cautious.

Nevertheless, better economic data is instilling some confidence in the economy, leading to some gains in the stocks. The second estimate of Q2 GDP data came in much higher than the initial estimate, the housing market is improving, consumer confidence is rising, and the unemployment rate dropped to a seven-and-half year low.

All these signaled that the U.S. economy is doing quite well on several aspects helping many sectors to hold up in the current market turmoil.

Below we have highlighted four such sectors and the ETFs that have managed to stay in the green dodging all the market worries. Investors should note that all the four funds have a decent ETF Rank of 3 or ‘Hold’ rating.

Consumer Staples: PowerShares DWA Consumer Staples Momentum Portfolio (NYSEARCA:PSL)

Consumer staples sector is on the rise as it is directly linked with improving economic fundamentals, in particular the spending power, which has increased owing to cheap fuel and rising income. As such, PSL has been able to withstand global worries, gaining 2.6% so far in the second half. The ETF provides exposure to 32 stocks having positive relative strength (momentum) characteristics by tracking the DWA Consumer Staples Technical Leaders Index.

It has amassed $203.4 million in AUM and trades in lower volume of 56,000 shares a day on average. Expense ratio came in at 0.60%. The product is pretty spread out across securities, with each holding less than 4.9% of assets. It has a definite tilt toward mid cap stocks while the other two market cap levels take the remainder. Food products, beverages and household durables are the key industries in the ETF having double-digit exposure each.

Homebuilding: PowerShares Dynamic Building & Construction Fund (NYSEARCA:PKB)

Thanks to soaring demand for new and rented homes as well as affordable mortgage rates, the housing sector is booming. PKB has returned 2.2% to date since the start of the second half. It tracks the Dynamic Building & Construction Intellidex Index, holding 30 stocks in its basket. The product is moderately concentrated across components, with each holding no more than 5.25% of assets. About half of the portfolio is allotted to small caps, followed by 41% in mid caps.

In terms of industrial exposure, construction materials, building materials, specialty retail, engineering and construction, and homebuilders make up for the top five with double-digit allocation each. The fund has amassed assets worth $56.8 million while sees light volume of around 15,000 shares per day on average. Expense ratio came in at 0.63%.

Insurance: PowerShares KBW Property & Casualty Insurance Fund (NYSEARCA:KBWP)

The insurance sector performed well in a rocky market by virtue of nature because here demand is less susceptible to the economic downturns. While there are a number of choices, KPWP stood out gaining nearly 2% since the start of the second half. This fund provides targeted exposure to the property and casualty insurers by tracking the KBW Property & Casualty Index.

Holding 22 securities, it is concentrated on the top 10 firms accounting for 63.9% of total assets. However, the fund has a spread out exposure across various market spectrums with 41% in large caps, 31% in mid caps and the rest in small caps. KBWP has been overlooked by investors in the insurance space as depicted by AUM of $31.5 million and average daily volume of 6,000 shares. It charges 35 bps in annual fees from investors.

Internet: First Trust Dow Jones Internet Index (NYSEARCA:FDN)

The usage of Internet has been growing by leaps and bounds, and is expected to accelerate further contributing to half of total consumption in the future from nearly 10% at present. Investors seeking to tap this trend might find FDN an intriguing pick. It is one of the popular and liquid ETFs in the technology space with AUM of $3.3 billion and average daily volume of more than 350,000 shares. The fund follows the Dow Jones Internet Composite Index and charges 54 bps in fees per year.

Holding 43 stocks in its basket, the fund is heavily concentrated on the top two firms – Amazon.com (AMZN) and Facebook (FB) – with over 10% share each. Other firms do not hold more than 6.12% of assets. Large caps account for 68% share while the rest are evenly split between mid and small caps. From an industrial look, Internet mobile applications account for 54% share, closely followed by Internet retail (27%). FDN added 1.8% in the same period.

This article is brought to you courtesy of Sweta Killa.


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