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Political Turmoil Triggers Sell-Off: 5 Sector ETFs Hit Hard

Sweta Killa

After a prolonged period of calm, Wall Street witnessed the first biggest sell-off of 2017 as turmoil in Washington cast doubts over President Donald Trump’s presidency and its pro-growth policies. In particular, the Dow and the S&P 500 saw the worst one-day drop since September 9 while the Nasdaq tumbled the most since June 24 last year.

Meanwhile, the CBOE Volatility Index (VIX), also known as the fear gauge, spiked 46% to 15.59, its biggest daily climb since Britain’s vote to exit from the EU in June.

Inside The Turmoil

The political drama in Washington started last week when Trump unexpectedly fired Federal Bureau of Investigation (FBI) Director James Comey and reports emerged on his intervention in disclosing highly sensitive intelligence information to Russia's foreign minister about a planned Islamic State operation.

The turmoil accelerated following the report in New York Times, where memo by Comey stated that Trump asked him to end an investigation into former National Security Adviser Michael Flynn's ties with Russia. This has raised fears of an impeachment of the President. While many analysts and experts view this as an unlikely and a distant prospect, calls for impeachment are growing louder, especially from Democrats. An impeachment requires the vote of two-thirds of the Republican-controlled Senate.

According to the British books, the chances of President Trump to leave the White House before his four-year term have increased to 55%. Per Irish bookie Paddy Power, the chances of a Trump impeachment stands at 33% while an outright Trump resignation implies 35% chance. The PredictIt exchange shows the probability of impeachment soared from 19% to 29% (read: 4 High-Flying ETFs & Stocks with More Room to Run).

The latest developments have raised worries over the delay in Trump effort’s on tax cuts, deregulation, and infrastructure spending that has pushed the stock market to record highs. This is because the Trump administration is facing increased scrutiny over its interference with a federal investigation and the leakage of secret information.

All these events dampened the appeal for riskier assets. While there have been victims in many corners of the space, several sector ETFs saw terrible trading on the day lagging the broad market fund SPY by wide margins.

PowerShares Dynamic Semiconductors Fund PSI – Down 5.1%

This fund targets the semiconductor industry of the broad technology sector. It follows the Dynamic Semiconductor Intellidex Index, which selects semiconductor stocks on a variety of investment criteria: price momentum, earnings momentum, quality, management action and value. In total, the fund holds a basket of 30 securities. It charges 63 bps in annual fees and has decent AUM of $259.8 million. PSI saw higher trading volume of more than 2.5 times the daily average and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a High risk outlook (read: Semiconductor ETFs Leading Tech Sector on Q1 Earnings).

SPDR S&P Regional Banking ETF KRE – Down 4.3%

This fund targets the banking corner of the financial sector and follows the S&P Regional Banks Select Industry Index, holding 101 stocks in its basket. KRE is one of the largest and the most popular ETFs in the banking space with AUM of $3.5 billion and expense ratio of 35 bps a year. It saw elevated volumes of two times the normal average and has a Zacks ETF Rank of 1 with a High risk outlook (read: Bank Stocks Take Hit As Trump Turmoil Continues).

PowerShares WilderHill Clean Energy Portfolio PBW – Down 3.9%

This product provides exposure to U.S. companies engaged in the business of advancement of cleaner energy and conservation. It follows the WilderHill Clean Energy Index and holds about 40 stocks in its basket with none holding more than 3.8% of the total assets. The fund has amassed $102.2 million in its asset base and charges 0.70% in expense ratio. PBW traded in normal average daily volume yesterday.

ARK Industrial Innovation ETF ARKQ – Down 3.9%

This is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvement and advancements in scientific research related to robotics, energy storage, innovative materials, alternative energy sources, infrastructure development, space exploration, autonomous vehicles and 3D printing. This approach results in a basket of 38 stocks, with Stratasys (SSYS) and Tesla (TSLA) occupying the top spots with a double-digit exposure each, while other firms hold less than 7.3% share. The product has accumulated $45.4 million in its asset base and charges 75 bps in fees per year. It saw volume of two times per average daily volume (read: Profit from Surging 3D Printing Stocks with This Niche ETF).

ALPS Medical Breakthroughs ETF SBIO – Down 3.9%

This fund targets companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. It is a small cap centric fund, having amassed $109.3 million in its asset base. The product holds 86 stocks in its basket with a well-diversified portfolio as each security holds no more than 5.2% of assets. The product charges 50 bps in fees per year from investors. It traded in elevated volume of nearly 5 times the average day and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.



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