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5 Sector ETFs That Beat the Market in April

Sweta Killa

After witnessing some volatility at the start April amid global growth concerns and earnings slowdown fears, the U.S. stock market showed complacency, with the S&P 500 and the Nasdaq Composite Index hitting new highs lately. This is especially true as the spate of better-than-expected earnings eased fears of a recession and bolstered optimism in the stock market.

Additionally, easing trade war fears, signs of improving growth in China with new measures and reforms, and steady albeit slowing growth in the U.S. economy added to the strength. The Fed’s decision of not raising interest rates this year after seven hikes over the past two years also bolstered investors’ sentiment. Further, an oil price surge and bouts of upbeat data globally are providing a boost to the stock market. The combination has extended a decade-long bull run.

The gains are broad-based with a few sector ETFs easily outperforming the market. Below we have highlighted five such ETFs that have seen handsome gains in April and could be better plays in the months ahead, provided the positive trends prevail.

iShares PHLX Semiconductor ETF SOXX

The semiconductor corner of the broad technology sector has led the way higher in April. As the chipmakers have a lot of exposure in China, optimism surrounding the deal between the two largest countries to end the trade war that badly shook the industry last year has been the biggest catalyst. Rising demand for cutting-edge technology, including cloud computing, big data, IoT, wearables, gaming, autonomous cars, VR headsets, drones, virtual reality, AI and machine is also fueling growth (read: Chipmakers on Fire: ETFs & Stocks Soaring to New Highs).

The deployment of 5G (fifth-generation) technology — the next wireless revolution — is creating further opportunities. The wave of mergers and acquisitions is providing further impetus to the space. While all the semiconductor ETFs are seeing solid trading, SOXX is the real winner, having gained more than 8%. This fund follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 firms, with each accounting for less than 11.5% share. It has amassed $1.3 billion in its asset base and charges 47 bps in fees a year. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Communication Services Select Sector SPDR Fund XLC

This sector has been on a rise given the broad market rally and resurgence in the big tech and media stocks. Better-than-expected earnings growth from some of the major stocks in the sector has added to the strength. Being a high growth sector, stocks in communication services have outperformed many other technology stocks. As such, XLC has gained nearly 8%.

This ETF tracks the communication services sector of the S&P 500 Index and has accumulated $5.9 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with heavy concentration on the top firms. About 45.9% of the portfolio is allocated to interactive media & services while entertainment and media round off the next two spots. The product charges 13 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) (read:  ETFs to Soar After Facebook's Solid Q1 Results).

Invesco Shipping ETF SEA

As the shipping sector is trading at multi-year discount, it is attracting investors to invest in it. Additionally, higher oil prices provided a lift to the sentiments that are benefiting shipping companies which transport bulk of oil and gas across the country and around the world (read: Top and Flop Sector ETFs on Tougher U.S. Sanctions on Iran).

This ETF follows the Dow Jones Global Shipping Index, which measures the performance of high dividend-paying companies in the global shipping industry. It is home to 26 stocks with heavy concentration on the top firm. The fund has AUM of $52.8 million and charges 66 bps in annual fees. It has gained nearly 8% in April.

Invesco Solar ETF TAN

Solar stocks have been on a tear thanks to rebound in global solar demand, California’s push to go solar, competitive pricing and the potential for Chinese subsidies. Higher oil prices are also contributing to the solar stock rally. As a result, TAN has risen nearly 7.5% in April.

This ETF offers global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 22 stocks in the basket with heavy concentration on the top firm. American firms dominate the fund’s portfolio with nearly 49% share, followed by China (24.1%) and Spain (7.2%). The product has amassed $313.9 million in its asset base and charges investors 70 bps in fees per year. It has a Zacks ETF Rank #3 with a High risk outlook (read: 6 ESG ETFs Beating SPY This Year: Is There More Room to Run?)

Invesco Dynamic Media ETF PBS

Media sector is also performing well driven by optimism over The Walt Disney Company (DIS) future growth story. Disney is in the process of acquiring Fox’s major assets for $71 billion that will boost its competitive position in the streaming media space and pose a significant threat to growing digital rivals like Netflix NFLX and Amazon.com AMZN. Following its acquisition of Twenty-First Century Fox FOXA, Disney is expected to account for at least 40% of domestic box-office revenues in 2019, a new record of market share. Further, the blockbuster release of Marvel Studios' new action movie — Avengers: Endgame — has added to the strength (read: Avengers Endgame Smashes Box Office Records: Buy Disney ETFs).

The optimism has propelled PBS, which has Disney as its top holding, higher more than 7% in April. The fund tracks the Dynamic Media Intellidex Index and seeks to offer capital appreciation by investing in companies that are selected on a variety of investment merit criteria. The approach results in a small basket of 30 stocks. The product has amassed $85.2 million in its asset base and charges 63 bps in annual fees. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

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