5 Beaten-Down ETFs to Buy Now
After a solid first half, Wall Street lost momentum in the second half. Worries over longer-than-expected higher interest rates and a weakening Chinese economy have been weighing on investors’ sentiment.
The beaten-down prices offer a solid buying opportunity for investors. We have highlighted five ETFs from different corners that have declined over the past three months but have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). These products, namely, SPDR S&P Biotech ETF XBI, SPDR S&P Semiconductor ETF XSD, Janus Henderson Small Cap Growth Alpha ETF JSML, First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund GRID and Invesco S&P SmallCap Consumer Discretionary ETF PSCD are poised to outperform when the market resumes its uptrend.
Fed officials have signaled they are prepared to lift borrowing costs again if the economy and inflation don’t cool further. Both retail sales and inflation in the United States came in hotter than expected for August, suggesting resilience in the economy and persistent price pressures make a case for more Fed rate hikes. The Consumer Price Index rose for the second consecutive month. While inflation has fallen from a peak of 9.1%, it remains well above the Fed's 2% target despite an aggressive interest rate hike campaign (read: 6 ETFs to Play Persistent Inflation).
The latest data also showed that U.S. industrial production continued to expand in August, beating expectations even though the pace of increase decreased due to sluggish manufacturing growth. Last week, the United Auto Workers union officially launched a historic strike at select Big Three automaker plants after the failure of a new contract. This acted as the latest headwind in the stock market.
On the other hand, U.S. consumer sentiment slipped for the second straight month in September as the University of Michigan's preliminary reading of its Consumer Sentiment Index dropped to 67.7 from the final reading of 69.5 in August. But the economic outlook brightened modestly as household expectations for near-term inflation fell to the lowest in more than a year, according to a survey.
China, the engine of global growth, is caught in deep trouble, given falling consumer prices, a deepening real estate crisis, slumping exports and a record-high youth unemployment rate. However, the latest data on upbeat retail sales and industrial production suggests that the economy picked up steam last month, easing concerns about growth in the world's second-largest economy (read: China ETFs Rebounding in July: Here's Why).
ETFs to Buy
SPDR S&P Biotech ETF (XBI) – Down 13.3%
Biotech might be a good buying option for long-term investors, given the encouraging industry trends, including new drug nods, an accelerated pace of innovation, promising drug launches, the growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, the rising middle class, an insatiable demand for new drugs and ever-increasing spending on healthcare. SPDR S&P Biotech ETF offers equal-weight exposure across 139 biotechnology stocks. It follows the S&P Biotechnology Select Industry Index, charging investors 35 bps in annual fees.
SPDR S&P Biotech ETF has AUM of $6 billion and trades in an average daily volume of 6 million shares. XBI has a Zacks ETF Rank #2.
SPDR S&P Semiconductor ETF (XSD) – Down 8.8%
The semiconductor sector has been on a hype buoyed by the artificial intelligence boom. Now, the successful Arm (ARM) IPO may act as the catalyst as growing interest around stock serves as evidence of the enthusiasm of smaller traders to invest in the sector. As such, XSD seems a prudent choice. SPDR S&P Semiconductor ETF offers exposure to the semiconductor segment of the broader technology sector and tracks the S&P Semiconductor Select Industry Index (read: Can Blockbuster Arm IPO Boost Semiconductor ETFs?).
It holds 38 stocks in its portfolio. SPDR S&P Semiconductor ETF has AUM of $1.4 billion and an average daily volume of about 58,000 shares. SPDR S&P Semiconductor ETF charges 35 bps in fees per year and has a Zacks ETF Rank #1.
Janus Henderson Small Cap Growth Alpha ETF (JSML) – Down 6.1%
Small caps seem to be good bets at beaten-down prices. Small-cap companies benefit from a resilient economy as these are more domestically tied and outperform when the economy improves. A strong dollar is also a booster to these pint-sized stocks. Janus Henderson Small Cap Growth Alpha ETF offers exposure to companies that can deliver sustainable growth over time by tracking the Janus Henderson Small Cap Growth Alpha Index.
It holds 181 stocks in its basket, with key holdings in industrials, healthcare, information technology, and financials. Janus Henderson Small Cap Growth Alpha ETF has been able to manage assets worth $141.8 million and trades in a lower volume of 16,000 shares a day on average. It charges 30 bps in annual fees and has a Zacks ETF Rank #1.
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) – Down 4.9%
The clean energy space is poised to profit from the growing trend toward sustainability. First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund offers exposure to stocks in the grid and electric energy infrastructure sector. It follows the Nasdaq Clean Edge Smart Grid Infrastructure Index and holds 100 stocks in its basket.
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund has accumulated $1 million in its asset base and trades in a volume of 72,000 shares a day on average. It charges 58 bps in annual fees and has a Zacks ETF Rank #2.
Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) – Down 2.4%
The consumer sector will likely benefit from higher spending power, elevated wage growth and a lower unemployment rate. Invesco S&P SmallCap Consumer Discretionary ETF targets the small-cap segment of the broad consumer discretionary space by tracking the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 85 securities in its basket, with specialty retail taking the largest share at 33.9%, while household durables, and hotels, restaurants and leisure account for double-digit exposure each.
Invesco S&P SmallCap Consumer Discretionary ETF has attracted $25.2 million in AUM and charges 30 bps in annual fees. It trades in an average daily volume of about 1,000 shares and has a Zacks ETF Rank #2.
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SPDR S&P Biotech ETF (XBI): ETF Research Reports
SPDR S&P Semiconductor ETF (XSD): ETF Research Reports
Invesco S&P SmallCap Consumer Discretionary ETF (PSCD): ETF Research Reports
Janus Henderson Small Cap Growth Alpha ETF (JSML): ETF Research Reports
First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF (GRID): ETF Research Reports
