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5 Top-Ranked Sector ETFs for a Promising Portfolio

Sanghamitra Saha

It is too hard or too early to predict how the U.S. economy will perform in the Trump presidency. But his election campaign or his first budget blueprint point to the fact that only certain sectors can be considered privileged.

The U.S. President’s policies are expected to give a push to these segments of the economy. Plus, an overall pickup in the global economy including the U.S. and the pattern of monetary policies at home and abroad should make some equity sectors winners in the near term.

In this light, we highlight five sector ETFs that were lately upgraded to Zacks Rank #1 (Strong Buy) as per the Zacks methodology.

VanEck Vectors Semiconductor ETF SMH

Semiconductor ETFs have had a great 2016 and is on course to maintain the winning momentum this year too. Decent earnings, consolidation activities and emerging technologies have been the tailwinds. Moreover, the segment’s value-centric nature helps it to manage the steep correction in the market better than the other high-growth tech investments.

Also, the Internet of Things (IoT) has received a lot of attention over the past few years. With this, semiconductor companies will step beyond the otherwise-saturating smartphone market and enter a rapidly growing arena. All these make SMH a good bet right now (read: Will Semiconductor ETFs Repeat This Year's Success in 2017?).

First Trust RBA American Industrial Renaissance ETF AIRR

Since small caps generate most of their revenues from the domestic market, they are more closely tied to the U.S. economy and its increased hiring promised by president Trump. Also, with Trump highly expected to bring U.S. manufacturing jobs back to the country and strictly oppose outsourcing, AIRR which focuses on small- and mid-cap U.S. industrial and community banking companies – is expected to benefit (read: Welcome Trump Era with These ETFs).

SPDR S&P Homebuilders ETF XHB

The homebuilding space has been an area to watch lately, given the optimism ahead of the key spring selling season, which is considered to be the peak time for home sellers. With the Fed offering dovish guidance over the future rate rise course, a steep rise in mortgage yields is not expected at the current level. This makes XHB a solid pick now (read: Is Spring Selling Season Opening Room for Housing ETFs?).

iShares Transportation Average IYT

The transportation space has buoyed up lately. President Trump’s pledges of higher fiscal spending and tax cuts acted as the main tailwind as these hinted at more activities and economic well-being. Moreover, the fund has a considerable exposure (29.05%) to Air Freight & Logistics. With Warren Buffet betting big on airlines, the sector got a lift and IYT added gains (read: Follow Warren Buffett With These ETF Strategies).

PowerShares KBW Bank ETF KBWB

Though the financial sector took a backseat lately on a dovish Fed rate outlook, the fundamentals are pretty bullish in the sector. Major banks have already come up with strong earnings reports in the latest reporting cycle, clearing the path for the banking ETF to outperform.

Also, investors should note that President Trump is eyeing to phase out the 2010 Dodd-Frank financial-overhaul law – one of the regulations undertaken in the height of the 2008 financial crisis. The Act led the finance sector companies to divest risky operations. It also increased the operating expenses of financial institutions pushing up compliance costs.  Further, stringent capital requirements led banks to curb investments.

So, if this stringent regulation is abandoned, financial companies and banks may book more profits ahead (read: Will Trump & Fed Make 2017 a Year of Financials ETFs?).

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SPDR-SP HOMEBLD (XHB): ETF Research Reports
ISHARS-TRAN AVG (IYT): ETF Research Reports
VANECK-SEMICON (SMH): ETF Research Reports
PWRSH-KBW BP (KBWB): ETF Research Reports
FT-RBA AMER IND (AIRR): ETF Research Reports
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