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Sector ETFs in Focus Amid Coronavirus Rout

Sweta Killa

The deadly coronavirus took a toll on investors’ sentiment and has sent the stock market into a bloodbath. It has resulted in lockdowns and forced people to stay indoors to contain the spread, putting economies of many nations at risk. All the major U.S. stock indices suffered their biggest weekly decline since the 2008 financial crisis and tumbled at least 32% from the record high touched last month.  

With the mass closures of private businesses, soaring layoffs and school shutdowns, market participants forecast global recession in the coming quarters. Even a slew of stimulus measures by the government and the central banks globally failed to revive confidence in the economy and the stock market (read: Market Collapsing: 5 Strategies for a Winning ETF Portfolio).

The epidemic has affected almost each and every corner of the broader market, commodities as well as fixed income. Some sectors have been hit hard while a few have bumped up. We have highlighted them below and their ETFs:
 
Airlines

The airline industry is facing its biggest crisis since the Sep 11 attacks almost two decades ago, with several airlines on the brink of collapse. Travel bans and orders to stay home have diminished demand for air travel with many airlines flying with thousands of empty seats. The deteriorating condition has forced many carriers to cancel international flights while domestic travel has also become limited. As more and more cities go into lockdown, the industry will face more hurdles. In such a situation, some airlines may not survive without government support if the coronavirus pandemic drags on.

U.S. Global Jets ETF JETS, which offers investors access to the global airline industry, including airline operators and manufacturers from all over the world, tumbled nearly 56% in a month. It has a Zacks ETF Rank #3 (read: Airline ETF & Stocks at Risk as Coronavirus Hits Air Travel).

Aerospace

With the collapse of air demand over fears of contagion and travel restrictions, planemakers and their suppliers are under pressure to save cash to ride out a liquidity crunch. This has forced planemakers to cut spending, staff and output. Boeing BA said it would halt production of most wide-body jets and Airbus SE will restart only partial output. Additionally, more than 500,000 aerospace production jobs are at risk due to the COVID-19 slowdown,

The most popular iShares U.S. Aerospace & Defense ETF ITA, which provides exposure to U.S. companies that manufacture commercial and military aircrafts and other defense equipment, tumbled nearly 48% in a month. The fund has a Zacks ETF Rank #2 (Buy) (read: Trump Budget 2021 Likely to Impact These Sector ETFs).

Energy

The oil industry has been suffering the worst rout in many years, thanks to shrinking demand. The lockdown has halted business and economic activities, which is weighing heavily on oil demand. Additionally, the two powerhouse producers — Saudi Arabia and Russia — are preparing to ramp up production at a time when demand has weakened significantly. The dual attack has resulted in a freefall in oil price. This led to terrible trading in the energy sector.

SPDR S&P Oil & Gas Equipment & Services ETF XES was the worst performer in the ETF world, losing around 64% in a month. It provides exposure to the oil and gas equipment and services segment of the broad energy segment and has a Zacks ETF Rank #5 (Strong Sell) (read: Oil & ETFs: What Investors Need to Know).

Gaming

The economy shutdown has been acting as a huge tailwind for video games and e-sports. Live streaming game providers such as Activision Blizzard ATVI, Tencent Holdings TCEHY, and Electronic Arts EA are seeing surge in streaming traffic in the past couple of weeks as most people have opted to stay home and are passing time by playing games and watching live videos. Video games and e-sports will continue to see outsized growth at least in the near term as directives for ‘social distancing’ continue around the world and people look for stay-at-home entertainment.

VanEck Vectors Video Gaming and eSports ETF (ESPO), which offers exposure to global companies involved in video game development, e-sports and related hardware and software, was down 18.5% in a month (read: ETFs to Ride on Rising Gaming Fervor Amid Coronavirus Scare).

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