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Markets Jump as Fears Ease: 4 Sector ETFs at New Highs

Sweta Killa
Investors are almost unanimously convinced that there will be a federal funds interest rate cut in July.

After rounds of steep market sell-off, Wall Street regained momentum on White House’s temporary exemption of the export blacklist against Huawei Technologies Co. The exemption will allow Huawei to purchase U.S.-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets for 90 days (read: 5 Tech ETFs Losing the Most on Huawei Ban: What's Ahead?).

The news was welcomed by investors and provided some relief to intensifying tensions between the United States and China. The slew of upbeat data, which indicates improving economy, also backs the momentum. Notably, the U.S. economy added jobs every month for 103 consecutive months, representing the longest-ever streak of job creation. The unemployment rate has dropped to 3.6% — the lowest in nearly 50 years — while wages rose at an annual rate of 3.2% in April, the ninth consecutive month of more than 3% growth. Additionally, the U.S. economy expanded at a faster-than-expected rate of 3.2% in the first quarter of 2019, marking the best GDP growth to start the year since 2015.

All these factors will boost consumer spending and keep the economy on a solid growth path. Americans also appear optimistic as consumer sentiment hovered at a 15-year high in early May. Additionally, a surge in oil price and the Fed’s decision of not raising interest rates this year after seven hikes over the past two years also added to the strength.

As many corners of the stock market fared well on the news, a few sector ETFs hit new 52-week high in the recent trading session. Below, we have highlighted them in detail and also cited the reasons behind their outperformance:

iShares U.S. Insurance ETF IAK – 52-Week Price: $69.35

With AUM of $103 million, this product targets the insurance corner of the broad financial market by tracking the Dow Jones U.S. Select Insurance Index and charges 43 bps in annual fees. Volume is light, trading in roughly 13,000 shares per day. In total, the fund holds 62 securities in its basket with higher concentration on the top firm. Property & casualty insurance accounts for the largest share at 48.8% while life & health insurance and multiline insurance round off the top three with double-digit exposure each. IAK has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

The ETF has been riding on a growing economy backed by a solid job market, increasing wages and rising consumer confidence that is leading to higher demand for all types of insurance services. Further, the industry is benefiting from the implementation of new technologies and innovative processes.

Utilities Select Sector SPDR XLU – 52-Week Price: $59.45

This fund provides exposure to a small basket of 28 utilities companies by tracking the Utilities Select Sector Index. It is heavily concentrated on the top firm and has AUM of $9.6 billion. Electric utilities takes the top spot in terms of sectors at 60.1%, closely followed by multi utilities (33.3%). The product charges 13 bps in annual fees and sees heavy volume of around 18.1 million shares on average. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Utility ETFs in Focus on Mixed Q1 Earnings).

Utility ETF has been hitting highs on investor’s flight to defensive investment. Being a low-beta sector, it is relatively protected from large swings (ups and downs) in the stock market and is thus considered safe haven amid economic or political turmoil.

iShares Evolved U.S. Consumer Staples ETF IECS - 52-Week Price: $27.99

Being defensive in nature, the consumer staples sector also sees steady demand in the event of an economic downturn due to its low level of correlation with economic cycles. It generally acts as a safe haven amid political and economic turmoil. Stocks in these sectors generally outperform during periods of low growth and high uncertainty. As such, IECS, which employs data science techniques to identify companies with exposure to the consumer staples sector, hit new high.

Holding 123 stocks in its basket, the fund is concentrated on the top two firms and has amassed $4 million in its asset base. It trades in average daily volume of 1,000 shares and charges 18 bps in annual fees (read: Forget Trade Fears, Invest in Defensive Sector ETFs).

First Trust North American Energy Infrastructure Fund EMLP - 52-Week Price: $25.26

This ETF is an actively managed fund designed to provide exposure to the securities headquartered or incorporated in the United States and Canada and engaged in the energy infrastructure sector. EMLP is one of the popular funds in this space with AUM of $2.4 billion and average daily volume of 794,000 shares. Expense ratio came in at 0.95%. The product holds well-diversified 48 securities in its basket. From a sector look, about half of the portfolio is allocated to oil & gas related equipment and services while electric utilities & IPPs round off the top two at 32%.

MLPs represent an attractive investment option for income-focused investors as these pay out substantially all of their income to investors on a regular basis. These have relatively consistent and predictable cash flows, making them safer and less risky than other plays in the broader energy space. In addition to high yields and the potential for capital appreciation, MLPs also have lower volatility and provide diversification benefits to the portfolio (read: MLP ETFs for Growth and Juicy Yields).

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