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ETF Winners & Losers Post Jackson Hole Meet

Sanghamitra Saha

The closely watched central bankers’ meeting at Jackson Hole did not reveal much about the timing of the next Fed rate hike. But Fed chief Janet Yellen indicated that the U.S. economy is moving slowly toward the central bank’s targets, which in turn bolstered chances of a Fed rate hike in the coming days. Yellen also noted that “while economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market.”

A solid job market is already present and the economy is also getting closer to ‘stable prices,’ – the dual strength made the Fed confident about the economy. Investors should note that several Fed officials have been advocating a September or a sooner-than-expected rate hike over the last few days. Following the Jackson Hole meeting, the market started pricing in the odds of a 25 bps hike in September (read: 3 ETF Ways to Win if the Fed Acts in September).

But Fed officials also stressed on the fact that they will require new measures going forward, including raising the inflation target or buying non-government-backed assets like corporate debt. After all, the U.S. economy is still slow with less-than-earlier-recorded growth in Q2. The growth rate as calculated now is 1.1% compared with the previously reported 1.2%. So, some accommodative economic tools are still needed.

It’s common knowledge that the Fed’s moves are data-driven. So all eyes have now shifted from Jackson Hole to job data to be released on September 2. If the numbers come out sturdy enough like last month, then the Fed may really take an action before the November presidential election. This is because things may turn dicey post-election (read: Hawkish Fed Vice Chairman Adds Strength to These ETFs).

Market’s View

Futures markets bet on a 30% chance of a hike in the September 20–21 meeting. Goldman Sachs raised its bet on a September hike from 30% to 40% following the meeting. The bond market also gave similar cues. The yield on the 10-year U.S. Treasury note jumped to 1.62% on August 26 from 1.58% recorded the day earlier while yield on the two-year U.S. Treasury note spiked to 0.84% on August 26 from 0.78% the prior day (read: Treasury Bond ETFs in Focus on Rising Rate Hike Prospects).

ETF Beneficiaries

The U.S. dollar ETFPowerShares DB US Dollar Bullish ETF UUP became a winner post Jackson Hole and added about 0.8% on August 26.

Currency-hedgedJapan ETF WisdomTree Japan Hedged SmallCap Equity ETF DXJS advanced over 0.9% on August 26 as yen dropped. Notably, CurrencyShares Japanese Yen ETF FXY shed over 1.2% on the same day.

With the economy on the mend and the U.S. dollar strengthening, small-cap growth ETFs like Guggenheim S&P SmallCap 600 Pure Growth ETF RZG found reasons for advancement. RZG was up about 0.5% on August 26.

Business Development Companies ETF, VanEck Vectors BDC Income BIZD, added about 0.4% on the day. The fund offers a benchmark-beating yield of about 8.67% annually. Moreover, these BDCs loan out to small- and mid-sized companies at relatively higher rates and often grab debt or equity stakes in those companies. These attributes make BDCs winners in the current investing backdrop.

ETF Losers

Utility ETFUtilities Select Sector SPDR ETF XLU dived about 2.1% on August 26 as the sector is rate sensitive in nature and underperforms in a rising rate scenario.

Dividend ETFiShares Select Dividend ETF DVY lost over 0.8% on reviving Fed hike bets as this segment falls out of investors’ favor in a rising rate scenario. This is because,safer investing options such as government bonds start yielding higher. This in turn dulls the lure for high dividend stocks.

Vanguard Short-Term Government Bond ETF VGSH lost about 0.1% on a steep rise in short-term bond yields.

iShares MSCI Emerging Markets EEM retreated about 0.9% on August 26 on fear of a cease in cheap dollar inflows.

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ISHARS-EMG MKT (EEM): ETF Research Reports
 
SPDR-UTIL SELS (XLU): ETF Research Reports
 
CRYSHS-JAP YEN (FXY): ETF Research Reports
 
PWRSH-DB US$ BU (UUP): ETF Research Reports
 
VANGD-ST GOV BD (VGSH): ETF Research Reports
 
GUGG-SP 600 PG (RZG): ETF Research Reports
 
ISHARS-SEL DIV (DVY): ETF Research Reports
 
WISDMTR-JP HSCF (DXJS): ETF Research Reports
 
VANECK-BDC INC (BIZD): ETF Research Reports
 
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