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Will Top ETF Areas of 1H Carry Momentum in 2H?

Sanghamitra Saha

It’s been over one week since we have entered the second half of 2017. Markets have so far been edgy in the latter half of the year with the S&P 500-based ETF SPY adding about 0.2%, Dow Jones-based fund DIA gaining about 0.4% and Nasdaq-based ETF QQQ going down by about 0.2% in the last five trading days (as of July 7, 2017). Small-cap fund iShares Russell 2000 ETF IWM was even more lackluster with about 0.5% loss in the last five days (as of July 7, 2017) (read: Trump Slump to Oil Slide: Top ETF Stories of First-Half 2017).

Issues from Fed’s policy tightening worries to uncertainty related to Trump’s policies and bearish happenings in the oil patch seem to have taken a toll. Against this backdrop, let’s find out if top-performing ETF events of the first half can replicate their success in the second half too.

What Would Happen to Tech?

Tech was a sweet spot in the first half. Thanks to the improving technology sector, the tech heavy Nasdaq Composite Index inched past the huge milestone of 6,000 for the first time in late April.

However, the stupendous rally made the space guilty of overvaluation, causing a crash in June. The waning trend seems to prolong ahead as “the difference in the volatility measures for the Nasdaq 100 and the S&P 500 has hit its widest level in over a decade” lately. Some strategies are issuing warnings related to the tech sell-off in the second half. 

While most tech funds saw a soft start to the third quarter, there are some funds that were the least hit. Investors can keep track of tech funds like PureFunds Drone Economy Strategy ETF IFLY and PureFunds ISE Mobile Payments ETF IPAY. The largest tech ETF Technology Select Sector SPDR ETF XLK was up about 0.4% in the last five days (as of July 7, 2017) while IFLY and IPAY gained about 1.8% and 1.1%.

Will Growth Retreat & Large Cap Value ETFs Emerge Now?

If small-caps were the stars in late 2016, large-caps ruled the first half of this year. Major U.S. indices hit highs in 1H. In fact, U.S. stocks witnessed the strongest first half of a year since 2013 on expectations that the Trump administration will deliver on pro-growth policies. An improving U.S. economy, an uptick in global macro economy and a Trump bump materially boosted growth stocks in 1H.

However, with Trump policy uncertainty being one of the key concerns now, geopolitical tensions on the rise and oil showing little signs of stabilization, investors may be rotating out of growth stocks and pilling into the value zone. Large-cap value ETFs like PowerShares S&P 500 Value With Momentum Portfolio SPVM, SPDR MFS Systematic Value Equity ETF SYV and WisdomTree LargeCap Value Fund EZY added about 1.7%, 1.1% and 0.9% in the last one week (as of July 6, 2017).

Will Euro zone Keep Wondering Investors in 2H?

International investing has been extremely upbeat lately on the improving health of several economies. This was especially true for the Euro zone space. Receding political upheaval on favorable election results in France and the Netherlands, and an uptick in economy pulled off the shares of the continent (read: Top 3 Foreign ETFs of Q2).

However, thanks to the hawkish tone from the ECB chief in June end, sovereign bond yields have lately been on the rise. German bond yields are also at this year’s high. At the start of July, European shares dropped to an 11-week low and stirred some concerns for the days ahead.

But we would like note that ECB’s retreat from QE is less likely to hurt the European momentum given the continent’s economic recovery. Along with many analysts, we also believe that the Euro zone is politically sounder now than thought before ahead of Brexit negotiations. 

iShares MSCI Austria Capped EWO, iShares MSCI Italy Capped ETF EWI, iShares MSCI Germany Small-Cap ETF EWGS and iShares MSCI Belgium Capped ETF EWK could be up for gains (read: 6 European Country ETFs to Buy Now).

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SPDR-TECH SELS (XLK): ETF Research Reports
SPDR-DJ IND AVG (DIA): ETF Research Reports
NASDAQ-100 SHRS (QQQ): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
ISHARS-R 2000 (IWM): ETF Research Reports
ISHARS-ITALY (EWI): ETF Research Reports
WISTR-US LC VAL (EZY): ETF Research Reports
PF ISE MOBLPAY (IPAY): ETF Research Reports
ISHARS-MS GRMSC (EWGS): ETF Research Reports
PF-DRONETECH (IFLY): ETF Research Reports
ISHARS-AUSTRIA (EWO): ETF Research Reports
ISHARS-BELGIUM (EWK): ETF Research Reports
PWRSH-SP5 VM (SPVM): ETF Research Reports
SPDR-MFS SVE (SYV): ETF Research Reports
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