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3 ETFs to Watch on July Fourth Gas Price & Storm Threats

Sweta Killa

July Fourth sparks a festive mood with summer travel, shopping and dining being in the cards of almost everyone. But will this festive lineup be marred by the recent spike in gas prices and a tropical storm that is forecast for this weekend? Analysts are not writing off lower travel and consumer spending this Independence Day holiday.

Gasoline prices have risen over $4 heading into the busy Independence Day weekend on continued instability in Iraq. This time, drivers have to pay the highest gas prices in six years on July 4. The average gas price on the day is expected at around $3.68 per gallon, 15–20 cents per gallon higher than the last six years (read: Iraq Ignites Gasoline ETF).

However, high gas prices are unlikely to have a significant impact on travelling as per AAA, which estimates about 41 million Americans traveling 50 miles or more during the holiday weekend (July 2 to July 6) with 34.8 million choosing to travel by automobiles. This is 1.9% higher than the last year and 14% from the Memorial Day weekend.

Then again, the National Weather Service has issued a hurricane warning for most of North Carolina. The first tropical storm of the season (Arthur) is strengthening into a hurricane and moving north along the East Coast. The maximum sustained winds of Arthur are currently 70 mph, 3 mph shy of the hurricane category. Arthur is also likely to bring showers and thunderstorms in New York, with 50% chance of rains on 4 July. This could threaten the Fourth of July fireworks in these regions (read: 3 American ETFs That Saw Fireworks to Start 2014).

But like every year, Americans are looking forward to star spangled skies from the mountains, to the prairies and the oceans. The party must go on, with the transportation industry and companies selling common consumer products enjoying the most. Below we have highlighted the following funds that will likely light up the ETF corner as July Fourth is celebrated:

iShares Dow Jones Transportation Average Fund (IYT)

The ETF provides exposure to the transportation sector of the broader market by tracking the Dow Jones Transportation Average Index. The fund holds a small basket of 21 stocks with heavy concentration and dominance in the top 10 holdings. From a sector perspective, railroad takes the top spot at 23.45%, while delivery service (22.00%), trucking (18.51%) and airlines (15.87%) round off to the top four.

The fund has accumulated $1.2 billion in its asset base while sees good trading volume of around 326,000 shares a day. It charges 44 bps in fees and expenses and gained nearly 12.4% so far this year. IYT has a Zacks Rank of 2 or ‘Buy’ rating with Medium risk outlook, suggesting its continued outperformance in the coming months (see: all the Industrials ETFs here).

Market Vectors Retail ETF (RTH)

This fund follows the Market Vectors US Listed Retail 25 Index and holds about 26 stocks in its basket with AUM of $40.1 million. Average daily volume is light at under 37,000 shares while expense ratio is at 0.35%. The product is heavily concentrated on the top 10 holdings with 63.75% of assets.

Sector wise, specialty retail occupies the top position with less than one-third share, followed by double-digit allocation to hypermarkets, departmental stores, drug stores, and health care services. RTH lost 1.6% so far in the year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Weak Earnings Hurting Retail ETFs?).

Consumer Staples Select Sector SPDR Fund (XLP)

This is the most popular and liquid ETF in the consumer space with AUM of over $6.9 billion and average daily volume of 7.9 million shares. The fund follows the S&P Consumer Staples Select Sector Index, charging 16 bps in fees per year from investors.

Holding 42 securities in its basket, the product has slight tilt toward food & staples retailing which makes up for one-fourth share, closely followed by household products (20.01%), beverages (19.83%) and food products (18.48%). The fund is concentrated on the top firm - Procter & Gamble (PG) – at 12.82% while other firms hold less than 9.6% of total assets.

The ETF is up 5.6% in the year-to-date time frame but has a Zacks ETF Rank of 4 or ‘Sell’ rating with a Medium risk outlook.

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Read the analyst report on XLP

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Read the analyst report on IYT

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