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4 Market Beating Sector ETFs & Stocks of 2016

Sweta Killa

After a tumultuous ride in early 2016, U.S. stocks made an impressive comeback overcoming all economic and political challenges and with high optimism. This is especially thanks to encouraging macro trends and investors’ increased appetite for riskier assets (read: S&P 500 On A Bull Run: Bet on Leveraged ETFs for 2017).

The U.S. economy is clearly on a solid footing buoyed by an impressive labor market, rising wages, slowly rising inflation, and increasing consumer spending. Americans have an optimistic view about the economy with confidence hitting the highest level since 2001 heading into the New Year. Additionally, the combination of other factors like return to the earnings growth era, the jump in oil price, the Trump effect and the rise in interest rates added to the strength.

In particular, Trump has promised to accelerate economic growth, spend big on infrastructure, reduce regulations, cut taxes and create more jobs in the country. These have instilled confidence in the market. As a result, the S&P 500 is up 10% while the blue chip index Dow Jones has moved higher by nearly 14%.

While many corners of the equity world have seen a torrid run, a few sectors have given incredible performances, easily crushing the broader markets. Below, we have highlighted four sectors and their related ETFs & stocks that have been the year’s star performers and could be better plays in the New Year (see: all the Categories ETF here).

Materials

The materials sector got a bump from rebounding commodity prices, positive developments in China, pick-up in global manufacturing activities and improving global trends. Additionally, Trump’s pro-growth policies to revive U.S. manufacturing and rehabilitate the country’s aging infrastructure added to its strength. The President-elect has proposed to spend a trillion dollars on infrastructure by rebuilding highways, bridges, hospitals and other infrastructure projects over 10 years.

PureFunds ISE Junior Silver ETF SILJ: This product provides a true small cap play on the silver mining space by tracking the ISE Junior Silver (Small Cap Miners/Explorers) Index. Holding 24 stocks in its basket, the fund is heavily concentrated on the top three firms that collectively make up for 39.8% of assets while other firms hold less than 6% share. Canadian firms take the lion’s share at 81%, while the U.S., Peru and United Kingdom take the reminder. The fund has managed assets worth $47.3 million and trades in a good volume of more than 225,000 shares a day. It charges 69 bps in annual fees and has gained about 149.3%. (read: 6 Top Performing Stocks of the Best ETF of 2016).

Teck Resources Limited TECK: Based in Vancouver, Canada, Teck Resources is engaged in the exploration, development and production of natural resources in the Americas, the Asia Pacific, and Europe. The stock saw huge an earnings estimate revision of $1.05 for this year over the past 60 days, with an expected growth rate of a whopping 532%. The stock has surged 426.4% this year and has a solid Zacks Rank #1 (Strong Buy) with a VGM Style Score of B.

Technology

After a lackluster first half of 2016, the technology sector has managed to perform well thanks to improving industry fundamentals, investors’ drive for cheaper valuation and renewed focus on growth stocks even after Trump’s proposed policies hit the sector hard. In particular, semiconductor stocks remained unscathed by the Trump fears given that they are cyclical and tend to move higher with the market rallies. Ongoing consolidations, emerging technologies and impressive earnings from leaders in the industry added to the strength (read: Will Semiconductor ETFs Repeat This Year's Success in 2017?).

PowerShares Dynamic Semiconductors Fund PSI: The product, with AUM of $132.1 million and average daily volume of around 37,000 shares, gained about 45.1% this year. This ETF tracks the Dynamic Semiconductor Intellidex Index, which selects stocks on a variety of investment criteria: price momentum, earnings momentum, quality, management action and value. In total, the fund holds a small basket of 30 securities with none holding more than 5.6% share. The product charges a fee of 63 bps a year and has a Zacks ETF Rank of 2 or ‘Buy rating with a High risk outlook.

Advanced Micro Devices Inc. AMD: Based in Sunnyvale, California, Advanced Micro Devices is a leading semiconductor company engaged in innovative products and technologies. The stock saw a positive earnings estimate revision from a loss of 27 cents to a loss of 24 cents for this year over the past 90 days with an expected growth rate of 61.3%. It has a solid Zacks Rank #2 with a VGM Style Score of C. Shares of AMD have risen 303.8% this year.

Industrials

The industrial sector has been on tear on a recovering manufacturing industry and a push from manufacturing reshoring. This trend is likely to continue under Trump presidency because he pledges to cut taxes, boost fiscal spending and be stricter about outsourcing. These should provide a boost to industrial stocks. He is highly expected to bring the lost U.S. manufacturing jobs back to the country.

First Trust RBA American Industrial Renaissance ETF AIRR: The ETF offers exposure to the small and mid cap securities in the industrial and community banking sectors by tracking the Richard Bernstein Advisors American Industrial Renaissance Index. Holding 43 stocks in its basket, the fund is pretty well spread across components with none holding more than 3.76% share. In terms of industrial exposure, engineering and construction and industrial engineering take the top two spots with a combined 58% of the portfolio. The product has $139.7 million in AUM and trades in a lower volume of around 61,000 shares per day on average. It charges 70 bps in fees and expenses and is up 44.5% so far this year. The fund has a Zacks ETF Rank of 2 with a High risk outlook (read: 4 Under-the-Radar ETFs Soaring High After Trump Win).

Fairmount Santrol Holdings Inc. FMSA: Based in Chesterland, Ohio, Fairmount Santrol provides sand-based proppant solutions for exploration and production companies to enhance the productivity of their oil and gas wells. Though the stock is expected to see earnings decline of 816.7% this year, it saw positive earnings estimate revision by a penny to a loss of 44 cents. Additionally, Fairmount Santrol has a solid Zacks Rank #2 but a dismal VGM Style Score of F. The stock has gained 399% this year.

Energy

After falling out of favor last year, the energy sector regained its lost sheen courtesy of a jump in oil prices led by improving demand/supply balances. This was backed by the OPEC output cut deal, falling production in the U.S., improving domestic economy and better economic condition in China. Notably, master limited partnerships (MLPs) have been leading as the hunt for income-oriented securities made them compelling choices. MLP’s higher payout and predictable cash flows make them safer and less risky than other plays in the broader energy space.

Alerian Energy Infrastructure ETF ENFR: This fund tracks the Alerian Energy Infrastructure Index holding 36 stocks, none of which accounts for more than 5.4% share in its basket. Oil and gas pipeline and the distribution sector accounts for 79% of the portfolio while utilities, and oil refining and marketing take the remainder. The ETF is unpopular and illiquid having gained $22.5 million in total asset base. The fund trades in a paltry volume of nearly 8,000 shares. It charges 65 bps in fees per year from investors and has added 36.5% this year (read: Why MLP ETFs May be the Best Energy Bets for 2017?).

Resolute Energy Corporation REN: Based in Denver, Colorado, Resolute Energy is engaged in the acquisition, exploitation, exploration, and development of oil and gas properties in the United States. The stock saw an impressive earnings estimate revision of 66 cents over the past 90 days for this year, with an expected growth rate of 159.6%. It has climbed 826.7% this year and has a Zacks Rank #2 with a VGM Style Score of C.

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