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Make the Most of Positive Trade News With These Sector ETFs

Sweta Killa

The trade drama has made investors edgy of late. The latest move by the Trump administration has eased some concerns and renewed the appeal for riskier assets. The Office of the U.S. Trade Representative plans to delay 10% tariffs on certain Chinese products, mainly consumer goods that are made in China and sold in the United States, until December. The news came just minutes after China said it held telephone talks with officials in Washington.

The list of goods to be exempted include cell phones, video game consoles, certain toys, computer monitors, certain items of footwear and clothing, baby monitors and strollers, microwaves, instant print cameras, doorbells, high chairs, musical instruments, ketchup dispensers, baby diapers, fireworks, sleeping bags, nativity scenes, fishing reels, paint rollers and food products. A separate group of products will also be exempted based on health, safety, national security and other factors. This means that around half of the $300 billion list of the remaining Chinese imports will be hit by tariff until mid-December.

Trump escalated the trade dispute in early August by announcing a new tariff of 10% on the remaining $300 billion of Chinese goods effective Sep 1. With this, the United States will effectively tax all Chinese imports. Meanwhile, China retaliated by allowing the yuan to slip to the lowest level against the dollar in more than a decade, sparking currency war concerns. Per Bloomberg News, China has halted imports of U.S. agricultural products (read: Treasury ETFs Rally to New Highs on New Tariff Threats).

The trade war has been hurting U.S. consumers, driving up prices of goods, thereby curtailing spending. It will further impact the worldwide economy and corporate profits, particularly at big U.S. exporters. All these will continue to weigh on the stock market and could disrupt global supply chains. Per Goldman, the latest Trump tariffs will trim up to 0.2 percentage points from U.S. GDP growth and cut 0.5- to 0.6 percentage points if the tariffs rise to 25%.

Market Impact

While the delay in tariff has been greeted by the broad stock market, sectors such as information technology, industrials, retail and agricultural, which are the most sensitive to trade issues, seem to be the biggest beneficiaries. In particular, chip stocks dominate the list of tech sector players with large sales exposure to China.

Below, we have highlighted a few ETFs from these sectors that are on investors’ radar given the positive news on the trade front:

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 $1.4 billion in its asset base and trades in volume of about 740,000 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: Short Semiconductor Stocks With These Two ETFs).

Technology Select Sector SPDR Fund XLK

This most-popular technology ETF has $21.2 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 31.1% of assets while IT services, technology hardware storage & peripherals, and semiconductors & semiconductor equipment. The product has a Zacks Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Niche Tech ETFs to Grab at $30 or Below).

Industrial Select Sector SPDR Fund XLI

This is the most popular ETF in the industrial space with AUM of $9.6 billion and average daily volume of 11.3 million shares. The fund follows the Industrial Select Sector Index, holding 69 stocks in its basket with each accounting for less than 8% of the assets. More than one-fourth of the assets is allocated to aerospace & defense while machinery, industrial conglomerates, while 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: Mixed Q2 Earnings Releases Put Spotlight on Industrial ETFs).

SPDR S&P Retail ETF XRT

This product follows the S&P Retail Select Industry Index, holding a well-diversified basket of 87 securities. Apparel retail accounts for 21.7% of the assets while automotive retail, Internet & direct marketing retail and specialty stores round off the next spots with double-digit exposure each. The ETF has amassed $187.5 million in its asset base and charges 35 bps in annual fees. Volume is extremely solid, with nearly 5.2 million shares exchanged a day on average. The fund has a Zacks ETF Rank #3 with a Medium risk outlook.

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