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5 Market-Beating Sector ETFs of Q2

Sweta Killa
While Equity Residential's (EQR) Q2 performance will likely benefit from healthy rental housing demand that would support occupancy level, high supply might curb its pricing power.

The second quarter was the most volatile for the U.S. stock market. After a steady climb in April, Wall Street disappointed in May and then rebounded in June.

Increased tit-for-tat tariff threats, rise in Middle East tensions, Brexit, geopolitical disturbance and global growth woes continued to make investors jittery. On the other hand, hopes of Fed’s easing policies, waves of mergers & acquisitions, and an oil price rebound fueled the rally.

While many corners of the equity world witnessed a solid run, a few sector ETFs performed incredibly well, thereby comfortably crushing the broader markets. Below we have highlighted five such funds that were the second quarter’s star performers and could also be winners in the ongoing quarter if the current trends continue.

Solar - Invesco Solar ETF TAN

This ETF, which offers global exposure to 22 solar stocks, emerged as a winner in the second quarter, climbing about 22%. This is primarily thanks to a rebound in global solar demand, California’s push to make solar panels, competitive pricing and the potential Chinese subsidies. The strongest-ever solar installation and the exemption of tariff on one type of solar panels also added to the strength.

American firms dominate the fund’s portfolio with nearly 48% share, followed by China (25.9%) and Germany (7.4%). The product has amassed $359.4 million in its asset base and trades in average daily volume of 159,000 shares. It charges investors 70 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: S&P 500 Hits New High: 10 Top-Performing ETFs YTD).

Gold Mining - iShares MSCI Global Gold Miners ETF RING

Gold was on a rise on hopes of loose monetary policies across the globe and flight to safe haven owing to rising geopolitical tensions and global growth worries. 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. As such, gold mining ETFs outperformed with RING leading the way higher, gaining 17.2% in the second quarter (read: Should You Buy Gold ETFs Now).

This ETF offers exposure to companies that derive the majority of their revenues from gold mining. It follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 35 securities in its portfolio. About half of the portfolio is allotted to Canadian firms, while United States, South Africa and Australia round off the next three with double-digit exposure each. The fund charges 39 bps in fees and expenses, and trades in good volume of 195,000 shares per day. It has been able to manage assets worth $240.9 million.

Insurance - Invesco KBW Property & Casualty Insurance ETF KBWP

The insurance corner of the broad financial market has risen 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 $94.4 million, it holds 24 stocks in its basket. The fund charges 35 bps in fees per year and trades in average daily volume of 7,000 shares. It gained 13.5% and has a Zacks ETF Rank #3 with a Medium risk outlook.

Aerospace & Defense - SPDR S&P Aerospace & Defense ETF XAR

Aerospace & defense sector got a boost from increased NATO defense spending, robust demand for passenger jets, and mergers & acquisitions. XAR offers equal-weight exposure to 30 stocks by tracking the S&P Aerospace & Defense Select Industry Index. It has been able to manage $1.6 billion in its asset base, while trades in average daily volume of around 151,000 shares. It charges 35 bps in annual fees and gained 13.3% in the second quarter. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Raytheon, United Tech to Merge: Aerospace ETFs in Focus).

Homebuilding - Invesco Dynamic Building & Construction ETF PKB

Homebuilder ETFs rallied on a decline in mortgage rates and slower home price growth that have made housing more affordable. The Fed’s more-than-expected dovish view has also led to strong optimism. As such, PKB follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 30 stocks in its basket. It has amassed assets worth $114.5 million and sees lower volume of around 19,000 shares per day on average. Expense ratio comes in at 0.58%. PKB was up 12% and has a Zacks ETF Rank #3 with a High risk outlook (read: Tough Time for Homebuilding ETFs Despite Fed's Dovishness?).

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