The U.S. stock market has come back strongly this year outplaying the global concerns including slowdown in China and other key emerging economies, turmoil in Russia, a struggling Europe, recession in Japan, geopolitical tensions and the biggest nightmare – the oil price havoc. In fact, the Dow Jones Industrial Average crossed the 18,000 mark for the first time in mid December and the S&P 500 (SPX) is on the verge of crossing the important threshold of 2,100.
This is especially true as the U.S. economy is on a stronger growth path thanks to stepped-up economic activities, improving business conditions, higher-than-expected U.S. GDP growth numbers, renewed optimism in housing recovery, better job market, low interest rates, higher wages, and rising consumer confidence. The good tidings boosted the appeal for riskier assets and investors continued to pour money into the equity markets via ETFs.
As a result, the U.S. ETF industry has hit the $2 trillion mark, accumulating $232 billion in new assets year to date buoyed by massive inflows into equity products. It easily topped last year’s record inflows of $188 billion (read: 3 Thriving ETFs with Over 500% AUM Growth in 2014).
While there have been winners in every corner of the space, a few sectors have easily crushed the broader markets in the year-to-date period. Below, we have highlighted three sectors and their related ETFs that have been star performers in 2014 and could be even better plays as we move into the next year.
Biotech ETFs
Despite the biotech meltdown early in the year, 2014 has turned out to be another banner year for the industry thanks to strong earnings growth, merger and acquisition frenzy, and encouraging industry trends. Ever-increasing health care spending, an insatiable demand for new drugs, an aging population, spending boom in emerging markets and Obamacare are fueling growth in the sector.
Though almost all the biotech ETFs have provided handsome returns, First Trust NYSE Arca Biotechnology Index Fund (FBT - ETF report) is leading the way higher, gaining 50% in the year. The fund has amassed $2.2 billion in its asset base and trades in a good volume of around 153,000 shares a day. It charges investors 60 bps in fees per year (read: The Complete Guide to Biotech ETFs).
This fund follows the NYSE Arca Biotechnology Index and holds about 30 securities in its basket. It is pretty well spread across each security as none of these accounts for more than 4.55% of assets and is slightly skewed toward mid cap at 40%, followed by 34% in small caps and the rest in large caps. Further, the fund has a tilt toward growth stocks at 66%. The product has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook.
Semiconductor ETFs
Semiconductors have enjoyed a strong rally on encouraging industry fundamentals, which will likely lead to solid growth of 9% in global semiconductor sales this year, per the World Semiconductor Trade Statistic. The gains came despite the worst sell-off in semiconductor stocks seen in early October. The rally was largely due to investors’ continued appreciation of value-centric traditional stocks.
PowerShares Dynamic Semiconductors Fund (PSI - ETF report) is the top performer in this space, returning more than 40% in the year. The fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in the basket with a diversified exposure to a number of securities. None of the firms accounts for more than 5.11% of assets. Additionally, it has a certain tilt towards small cap stocks with a 57% share while large caps and mid caps take the remainder.
The product, with AUM of $37.3 million, is often overlooked by investors and hence sees a lower average daily volume of 23,000 shares. The expense ratio came in at 0.63%. PSI has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: Semiconductor ETFs Riding High on Holiday Optimism).
Transportation ETFs
With the economy growing at the fastest clip in more than a decade and the oil price at a five-year low, transportation stocks have performed extremely well this year. Solid retail, manufacturing and labor data are the major tailwinds for this broad-based growth. This created strong demand for the movement of goods across many economic sectors. Transportation ETFs consequently got a boost with SPDR S&P Transportation ETF (XTN - ETF report) leading the way higher.
This fund uses an equal weight methodology for each security by tracking the S&P Transportation Select Industry Index. Holding 50 stocks in its basket with AUM of $558.7 million, each security accounts for less than 2.75% of total assets. The ETF is widely spread across various market caps with 45% in small caps, 33% in mid caps and the rest in large caps.
More than one-third of the portfolio is dominated by trucking while airlines takes a one-fourth share. Airfreight & logistics and railroads also make up for double-digit allocation. The fund charges 35 bps in fees per year from investors and trades in a moderate volume of about 65,000 shares a day. XTN has added over 34% this year and has a Zacks ETF Rank of 2 with a High risk outlook (read: 3 Sectors ETFs That Should Thrive On Low Oil Prices).
Comments
Log in or sign up to join the conversation.