U.S. Markets open in 3 hrs 55 mins

ETFs to Buy on Phase 1 of U.S.-China Trade Deal

Sweta Killa

The trade drama, which has rattled the stock market for more than 15 months, is now heading toward a positive path. This is especially true as President Donald Trump announced a partial trade deal with China, namely “substantial phase one” of trade deal, wherein Washington suspended the tariff hike on Chinese goods worth $250 billion set to go into effect next week and Beijing agreed to buy $40-$50 billion in U.S. farm products.

Though the deal is yet to be finalized, the partial accord covers agriculture, currency, financial services and some aspects of intellectual property protections. The White House will also consider revoking its currency manipulation designation against China. The first part of the deal is expected to be signed by both countries at the Nov 16 summit of the Asia Pacific Economic Cooperation countries in Santiago, Chile. The phase two of the deal related to Huawei Technologies Co. will start after the first is signed (read: Momentum ETFs in Focus on Trade Deal Optimism).

The move marks a sharp turnaround from early last week’s market sell-off when the United States expanded the blacklist of a group of Chinese technology companies over alleged human rights violations. The phase one of the trade deal has instilled strong optimism into the global economy and the stock market.

ETF Impact

While most corners of the market are set to explode higher, sectors that are the most sensitive to trade issues, seem to be the biggest beneficiaries. As such, investors should buy ETFs from information technology, industrials, retail and agricultural sectors. In particular, chip stocks dominate the list of tech sector players with large sales exposure to China. Additionally, growth and high-beta ETFs seem excellent plays for investors seeking broad market exposure.

Below we have highlighted a few ETFs from these corners of the market that are on investors’ radar given the substantial trade deal progress:

iShares PHLX Semiconductor ETF SOXX

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 U.S. firms with heavy concentration on some of the top companies. The fund has amassed $1.8 billion in its asset base and trades in volume of about 712,000 shares a day. The product charges a fee of 46 bps a year from investors and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: ETF Areas to Shine on 'Very Good' Trade Negotiation).

Technology Select Sector SPDR Fund XLK

This most-popular technology ETF has $22.6 billion in AUM and charges 13 bps in fees per year from investors. It tracks the Technology Select Sector Index, holding 68 stocks in its basket with heavy concentration on the top two firms. Software firms account for 30.3% of assets while IT services, technology hardware storage & peripherals, and semiconductors & semiconductor equipment have double-digit exposure each. The product has a Zacks Rank #1 (Strong Buy) with a Medium risk outlook.

Industrial Select Sector SPDR Fund XLI

This is the most popular ETF in the industrial space with AUM of $9.4 billion and average daily volume of 10.9 million shares. The fund follows the Industrial Select Sector Index, holding 69 stocks in its basket with each accounting for less than 9% of the assets. More than one-fourth of the assets is allocated to aerospace & defense while machinery, industrial conglomerates, and road & rail make up for a double-digit share each. This ETF charges 13 bps in fees per year and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 4 ETFs to Play the Key Events in Q4).

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index. It is highly concentrated on Amazon (AMZN) at 19.5% while the other firms hold no more than 11.2% share. The ETF has a certain tilt toward specialty retail, which accounts for 32% share while Internet & direct marketing (22%), hypermarkets (15%), and department stores (12%) round off the next three spots. The product has amassed $71.8 million in its asset base and charges 35 bps in annual fees. RTH trades in volume of 8,000 shares per day on average and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Is Holiday Season Frenzy Fading for Retail ETFs?).

Vanguard Mega Cap Growth ETF MGK

With AUM of $4.4 billion, this ETF offers broad exposure to the U.S. mega-cap growth stocks by tracking the CRSP US Mega Cap Growth Index. It holds 121 securities in its basket with none accounting for more than 9.9% of the total assets. It has key holdings in technology, consumer services, financials and industrials that account for double-digit exposure each. It charges 7 basis points in annual fees and trades in good volume of around 168,000 shares a day on average. The fund sports a Zacks ETF Rank #1 with a Medium risk outlook.

Invesco S&P 500 High Beta ETF SPHB

This ETF tracks the performance of 100 stocks from the S&P 500 Index with the highest beta over the past 12 months. It is widely spread out across each security as none holds more than 1.8% of the total assets. More than one-third of the portfolio is allotted to information technology while industrials and energy round off the next two spots with double-digit allocation. It has AUM of $105.3 million and 0.25% in expense ratio.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>