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4 Sector ETFs Surviving May Swoon

Sweta Killa

After peaking in early May, Wall Street found itself trapped in a vicious circle of worsening trade relationship between the United States and China that could derail global economic and corporate profit growth. The two largest economies of the world concluded their eleventh round of trade talks without an agreement following which the Trump administration doubled tariff on $200 billion in Chinese imports and China hit back by raising its own tariffs.

The chaos has triggered several rounds of broad market sell-off. With this, the U.S. market is on track for its first monthly drop this year and proved the old adage “Sell in May and Go Away” true this year. Notably, the S&P 500 Index has shed more than 5% so far this month (read: 5 ETF Strategies to Beat Sell in May and Go Away).

However, the U.S. economy is still on a firmer footing backed by solid job growth, rising wages, strong consumer confidence and increasing consumer spending. All of these bode well for the stock market. Additionally, a surge in oil price and the Fed’s decision of not raising interest rates this year after seven hikes over the past two years also added to the bull thesis.

That said, a few sector ETFs have easily outperformed the market and are trading in the green this month. Below we have highlighted such four ETFs that have gained handsomely in May and could be better plays in the months ahead, provided the positive trends prevail.

VanEck Vectors Rare Earth/Strategic Metals ETF REMX – Up 4.4%

This overlooked ETF has gained immense popularity as China has threatened to restrict rare-earth exports to the United States as a countermeasure against the ban on telecom giant Huawei. As China exports about 80% of rare earths, which is critical in defense, energy, electronics and automobile sectors, to the United States, the expected ban could make the minerals more expensive or unavailable. REMX is the only ETF targeting the pure rare earth metal space having AUM of $206 million and average daily volume of 218,000 shares (read: Rare Earth Metal ETF to Surge on Chinese Export Ban).

It offers exposure to companies engaged in producing, refining and recycling of rare earth and strategic metals and minerals. The ETF follows the MVIS Global Rare Earth/Strategic Metals Index, holding 20 stocks in its basket. It is heavily concentrated on the top 10 companies, which account for nearly 63.2% of the assets. From a country look, Chinese firms dominate the portfolio with 26.3 share, closely followed by Australia (24.9%) and the United States (11.3%). The product charges 59 bps in annual fees.

Market Vectors Gold Mining ETF GDX – Up 3%

Gold has been on a tear this month on investors’ flight to safety. The escalation in trade war fears has made investors jittery, raising demand for safe haven avenues. Against such a backdrop, gold is considered a great store of value and hedge against market turmoil. Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more gains than their bullion cousins in a rising metal market. GDX is the most popular and actively traded gold miner ETF with AUM of $8.8 billion and average daily volume of 43.8 million shares.

The fund follows the NYSE Arca Gold Miners Index, holding 46 stocks in its basket. Canadian firms account for half of the portfolio, while the United States (18.9%) and Australia (16.3%) round off the top three. The fund charges 52 bps in annual fees (read: Top and Flop ETFs of May).

The Long-Term Care ETF OLD – Up 2.6%

This real estate ETF gain from its defensive nature, which is largely immune from any political or economic disturbances. This is because it seeks exposure to companies globally that are positioned to profit from providing long-term care to the aging population. These include companies owning or operating senior living facilities, nursing services, specialty hospitals or senior housing, as well as biotech companies for age-related illnesses and companies that sell products and services to such facilities.

The ETF holds 46 stocks in its basket with heavy concentration on the top two firms. American firms account for 80% share while Europe and Asia Pacific-ex Japan round off the next two countries. OLD has amassed $16.5 million in its asset base and charges 35 bps in fees per year. It trades in average daily volume of 8,000 shares.

Invesco KBW Property & Casualty Insurance ETF KBWP – Up 2.5%

The insurance corner of the broad financial market has been riding higher on a growing economy backed by a solid job market, increasing wages and rising consumer confidence that are leading to higher demand for all types of insurance services. KBWP offers exposure to companies primarily engaged in U.S. property and casualty insurance activities. With AUM of $71.3 million, it holds 24 stocks in its basket with none making up for more than 9% of the assets. The fund charges 35 bps in fees per year and trades in average daily volume of 4,000 shares. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: ETFs From Top and Flop Zones to Start May).

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