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5 ETFs That Deserve Special Thanks in 2018

As Americans prepare for Thanksgiving Day, let’s explore the bounty that the investment world holds on this occasion. This can be easily done by screening ETFs that have rewarded investors this year.    

How is the Stock Market Faring?

After a blockbuster start to 2018, the American stock market is caught in a vicious circle of volatility and uncertainty. It started with growing inflationary threats, surge in yields, tech selloff, and anti-trade Trump policies in the first half of the year that continued in the second half even with more hurdles. Some of the notable ones were political malaise in Europe, escalation in U.S.-China trade war, troubles in emerging market and threats of a global slowdown. Additionally, oil price crashed last week and slipped into a bear territory (read: Oil Price on Longest-Ever Losing Streak: 5 ETF Zones to Benefit).

As such, both the S&P 500 and Dow Jones wiped out all the gains and were pushed slightly into red from a year-to-date look.

However, a slew of strong earnings and rounds of upbeat economic data have been the major catalysts to stocks. This is especially true as the American economy has been on a solid pace of growth with robust job creation, strong GDP growth, a 50-year low unemployment rate, the fastest pace of wage gains in nearly a decade, and rising consumer and business confidence. While third-quarter GDP growth slowed to 3.5% from 4.2% in the second quarter amid mounting headwinds from trade, it marks the best two-quarter stretch in four years. With this, the economy is on pace for the fastest annual growth in 13 years.

That said, a few corners are easily crushing the broader market in the year-to-date period. Below we have highlighted five ETFs that have been star performers so far this year and could be better plays in the coming months. These ETFs deserve special thanks and attention going into the New Year too (see: all the Categories ETF here).

Invesco S&P SmallCap Health Care ETF PSCH – Up 22.5%

This ETF got a boost from the dual tailwinds of its sector’s non-cyclical nature and its small-cap focus. Small-cap stocks are well insulated from headwinds as we are currently seeing. These stocks are considered safe and better plays if any political issue or economic turmoil creeps into the picture. Additionally, encouraging sector fundamentals, tax reform, rising M&A activities and a positive regulatory backdrop added to the strength (read: Trump's Presidential 2 Years: Must-See ETF Areas).

This fund provides exposure to the healthcare sector of the U.S. small-cap segment by tracking the S&P SmallCap 600 Capped Health Care Index. Holding 67 securities in its basket, it is widely diversified across components, with each holding no more than 4% share. From an industrial look, healthcare providers & services and healthcare equipment & supplies take the top two spots with one-fourth of the portfolio each followed by biotechnology with 20.4% allocation. The product has amassed $1.1 billion in its asset base and trades in a moderate average daily volume of around 132,000 shares. It charges 29 bps a year from investors and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

SPDR S&P Internet ETF XWEB – Up 14.4%

Though technology sector has beaten down badly in recent month with FAANGs and other big firms entering into a bear territory, few ETFs survived the rout. This is especially thanks to improved overseas demand, innovative technologies and rapid adoption of cutting-edge technology.

This product targets the Internet corner of the broad tech space. It tracks the S&P Internet Select Industry Index and holds 45 stocks in its basket with an equal-weight exposure of around 3%. The fund has accumulated $46.8 million in its asset base and charges 35 bps in fees from investors. It trades in a light volume of around 15,000 shares a day on average and carries a Zacks ETF Rank #2 (read: Forget FAANGs, Invest in These Tech ETFs Instead).

Hartford Multifactor Low Volatility US Equity ETF LVUS – Up 11.7%

The appeal for low volatility ETFs have raised as these have the potential to outpace the broader market in bearish market conditions or in an uncertain environment providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these are allocated primarily to defensive sectors that usually have a higher distribution yield than the broader markets. While most of the ETFs in the low-volatility space are enjoying smooth trading this year, LVUS is the winner having surged 11.7%.

This ETF offers exposure to the low volatility factor, balance risk across sectors, and seeks neutral-to-positive exposure to value, momentum, and quality by tracking the Hartford Multifactor Low Volatility US Equity Index. It holds 252 stocks in its basket with each accounting for less than 2% of assets. In terms of sector exposure, industrials, consumer discretionary, information technology and healthcare are the top four sectors accounting for double-digit allocation each. The product has $5.4 million in AUM and trades in solid volumes of around 5.4 million shares per day on average. It charges 22 bps in fees and expenses.

AGFiQ US Market Neutral Anti-Beta Fund BTAL – Up 11.2%
In an uncertain market environment, demand for low beta ETFs also raised. These products tend to be less volatile than the overall market and usually outperform when the market is plunging. This has translated into a great year for BTAL. The fund invests in low-beta securities while at the same time shorts high-beta stocks of approximately equal dollar amounts within each sector. It seeks to deliver the spread return between low and high beta stocks. This can easily be done by tracking Dow Jones U.S. Thematic Market Neutral Anti-Beta Index.

This approach results in long and short positions in 200 stocks, in equal proportions. The fund charges 1.06% in fees per year and trades in a light volume of 10,000 shares per day. BTAL has accumulated $22.5 million in its asset base (read: Are We Headed Toward Bear Market? ETFs to Save Your Portfolio).

Invesco DWA Utilities Momentum ETF PUI – Up 10.3%

The utilities sector is making the most of all the uncertainty. Being the low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil. In particular, PUI offers exposure to 31 companies that are showing relative strength (momentum) and tracks the DWA Utilities Technical Leaders Index. It charges 60 bps in annual fees and sees a light volume of around 8,000 shares on average. PUI has AUM of $51.2 million and a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Top and Flop ETFs at Half-Way Q4).

Bottom Line

These products have not only built a better portfolio for investors this year but are also bringing diversification benefits by eliminating company-specific risks to a large extent with lower costs. As a result, these are considered praiseworthy in the ETF space.

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PWRSH-DW UTL MO (PUI): ETF Research Reports
QS-US MN AN-BET (BTAL): ETF Research Reports
SPDR-SP INTRNT (XWEB): ETF Research Reports
PWRSH-SP SC HCP (PSCH): ETF Research Reports
HARTFORD-LV US (LVUS): ETF Research Reports
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