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Top-Ranked Sector ETFs to Buy for Q3

Sanghamitra Saha
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As we are on the verge of stepping into the third quarter of 2018, investors may be interested to in knowing which sectors can perform well ahead. This is especially true given that investors are caught in the crossfire of trade tensions and political crisis in Europe. An economic slowdown in developed economies and emerging market selloffs are added tensions.

So, it would be intriguing to note some sector ETFs that have a Zacks Rank #1 (Strong Buy) and 2 (Buy) and are likely to outperform ahead.

Technology

Tech stocks were hit hard in mid-March but rebounded nicely in Q2, having survived nearly a one-month rout. The sector has been on stronger ground. Rising enterprise spending, the tailwind of tax cuts and emerging technologies like cloud computing, artificial intelligence and big data are the wind beneath the wings of the tech sector (see all technology ETFs here).

Investors should note that tech behemoths hoard huge cash overseas and are poised to benefit the most from Trump's repatriation tax policy. Also, investors can expect higher dividend distribution or share buyback from this move.

Invesco Dynamic Networking ETF (PXQ), Vanguard Information Technology ETF VGT) and First Trust Dow Jones Internet ETF FDN are some of the top-ranked ETFs that could be targeted now.

Industrials

The industrials sector is supposedly one of the key beneficiaries of the Trump administration thanks to his infrastructure plan that should create higher demand for a wide range of manufacturing products. Also, the tax reform could accelerate depreciation (as indicated by research firm Fundstrat), which in turn would boost capital spending and a lead to step-up in the sector’s activity. 

However, since import tariffs are now creating an upheaval, investors can rely on Zacks Rank #2 fund PSCI, which has a focus on small domestically focused industrial companies.

However, some large-cap funds also have favorable ranks. These are the likes of Guggenheim S&P 500 Equal Weight Industrials ETF RGI, Fidelity MSCI Industrials Index ETF FIDU and First Trust RBA American Industrial Renaissance ETF AIRR.

Consumer Discretionary

A raft of upbeat economic data and a solid U.S. market reignited optimism in the consumer discretionary space. With OPEC planning to boost output in the coming days, we can expect a moderation in the oil price rally (read: Best Sector ETFs of Last Week).

A pickup in the economy is great for a cyclical sector like consumer discretionary or retail. Such sectors perform better in a rising rate environment that we are witnessing currently in the United States (read: Here's Why the Rally in Retail ETFs Will Continue in 2H).

Invesco S&P SmallCap Consumer Discretionary ETF PSCD, SPDR S&P Retail ETF XRT and Fidelity MSCI Consumer Discretionary Index ETF FDIS can thus be exercised now.

Financials

A hawkish Fed and the resultant rise in benchmark Treasury yields should favor financial stocks as these perform well in a rising rate environment. Plus, deregulations in the banking industry and overall economic growth are the other positives. SPDR S&P Regional Banking ETF KRE, Financial Select Sector SPDR ETF XLF and SPDR S&P Bank ETF KBE should thus be followed.

HealthCare

The sector has been enjoying a host of tailwinds. President Trump’s announcement of the drug plans in May, which were in the best interest of pharma companies, favored the space. The drug plans will likely put pressure on U.S. trading partners, forcing them to pay more for medicines (read: Play the Best Sector of Summer With These ETFs & Stocks).

Also, on May 30, the President signed the 'Right To Try' bill into law. This law will help patients suffering from terminal diseases to undergo experimental treatments and use drugs that are not yet approved by the FDA. Needless to say, the law should bring more opportunities for biotech companies. The U.S. healthcare supply chain is consolidating fast, with deals across the industry ranging from insurers, pharmacies to drug distributors.

iShares US Medical Devices ETF IHI, Invesco S&P SmallCap Health Care ETF PSCH and VanEck Vectors Biotech ETF BBH are some of the top-ranked ETFs to buy now (read: 5 ETF Ways to Trade 6-Year High U.S. Inflation).