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5 Top-Ranked ETFs With Impressive Upside Potential

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·6 min read
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Wall Street has remained strong year to date. Notably, the Dow Jones Industrial Average is up about 14.7% so far in 2021. The S&P 500 index and the Nasdaq Composite are also up 20.3% and 19.3%, respectively. However, there are several factors keeping investors worried about Wall Street’s performance in the remainder of 2021.

Certain economic data releases have also turned out to be very disappointing. The U.S. economy added only 235,000 jobs in August 2021 (the lowest in seven months). The metric was far behind the forecast of 750,000 as a surge in COVID-19 infections probably kept companies from hiring and workers from actively looking for a job (per a CNBC article). The U.S. unemployment rate declined to 5.4% in July 2021, below market expectations of 5.7%. The number of unemployed persons dropped by 782,000 to 8.7 million.

U.S. consumers seem worried about the sustainability of economic recovery from the pandemic-led slump, surging delta variant threat and increasing inflation levels.

The virus variant remains a serious concern as the number of cases is rising in the United States. The new cases arising from the delta variant are being mostly observed among the unvaccinated population. Going by Johns Hopkins University data, the United States is witnessing an average of 160,000 new COVID-19 cases a day, per a CNN report.

The resurging cases might scare investors as they worry about the implementation of new lockdown measures to control the spread, which may hurt the global economic recovery achieved so far.

Studying the present market scenario, let’s take a look at some top-ranked ETFs that have gained more than 30% in the year-to-date period and investors can consider adding them to their portfolio:

SPDR S&P Retail ETF XRT— up 49% year to date

The increase in direct payments to Americans definitely worked in favor of players in the consumer discretionary sector, which attracts a major portion of consumer spending. A number of restaurants and retailers that have resumed business after restrictions were relaxed in the United States also witnessed some accelerated demand and footfall. The progress in coronavirus vaccine rollout is presenting a stronger case in favor of a faster return to normalcy and economic recovery.

This fund tracks the S&P Retail Select Industry Index. The product has amassed $1.22 billion in its asset base. It charges 35 basis points (bps) in annual fees from investors and carries a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook (read: Retail ETFs Mixed on Blockbuster Q2 Earnings Wave).

The Real Estate Select Sector SPDR Fund XLRE— up 38.1%

Per the FOMC minutes, the central bank will patiently wait to attain the “substantial further progress” benchmark before tightening the policy, as stated in a CNBC article. When interest rate drops, mortgage rates fall, making real estate or refinancing mortgages more affordable. This in turn results in higher real estate sales. Further, uncertainty in market conditions due to the resurging coronavirus outbreak and slowdown in the global economy are making investors jittery, adding to the lure of these funds. This is because these funds offer outsized yields and act as good investing options when increased safe-haven trade keeps yields at check.

The fund seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the Real Estate Select Sector Index. It has AUM of $4.61 billion and charges 0.12% in expense ratio. The fund carries a Zacks ETF Rank #1, with a High-risk outlook (read: Real Estate ETFs at All-Time Highs: Here's Why).

iShares U.S. Home Construction ETF ITB — up 32%

The U.S. housing sector witnessed some positive data releases amid new home sales, which rose in July after declining for three straight months. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales were up 1% in July to a seasonally-adjusted annual rate of 708,000 units. This compares favorably with June’s upwardly revised sales of 701,000 units from 676,000 units.

The housing market steadily benefited from the changing demographical preferences of a large chunk of population as people increasingly looked for work-from-home-friendly properties. Individuals were shifting from city centers to suburbs and other low-density areas, looking for spacious accommodations for home offices and schools, per the sources.

This fund provides exposure to companies boasting a history of sustained dividend growth by tracking the Dow Jones U.S. Select Home Construction Index. The fund has AUM of $2.38 billion. It charges 41 bps in fees per year. It carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: Will Housing ETFs Gain as US New Home Sales Rise in July?).

Vanguard Financials ETF VFH— up 31.4%

Improving prospects for the financial sectors space amid the rebounding U.S. economy are gaining increased investor attention. It is a well-known fact that an improving U.S. economy can continue to perk up demand for loans. Also, steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to have received support from the steepening of the yield curve and a modest rise in loan demand.

The fund seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the MSCI US Investable Market Index (IMI)/Financials 25/50. It has AUM of $10.85 billion and charges 0.10% in expense ratio. The fund carries a Zacks ETF Rank #1, with a Medium-risk outlook.

First Trust Mid Cap Value AlphaDEX Fund FNK — up 30%

Market participants are upbeat about the impressive second-quarter 2021 earnings results and the rebounding U.S. economy from the coronavirus led-slump. However, rising new delta variant cases are increasing concerns about the sustainability of the economy and earnings growth. Considering the mixed sentiments, mid-cap funds are gaining increased attention as they provide both growth and stability in comparison to the small-cap and large-cap counterparts.

This fund provides exposure to companies boasting a history of sustained dividend growth by tracking the NASDAQ AlphaDEX Mid Cap Value Index. The fund has AUM of $137.8 million. It charges 70 bps in fees per year. It carries a Zacks ETF Rank #2, with a Medium-risk outlook.


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SPDR S&P Retail ETF (XRT): ETF Research Reports
 
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
 
Vanguard Financials ETF (VFH): ETF Research Reports
 
Real Estate Select Sector SPDR ETF (XLRE): ETF Research Reports
 
First Trust Mid Cap Value AlphaDEX ETF (FNK): ETF Research Reports
 
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Zacks Investment Research