Top-Ranked ETFs From Top-Performing Sectors

As the U.S. economy gains momentum and hiring remains solid, the six-year old bull market seems to have legs. This is especially true as the world’s largest economy recorded the strongest annual job growth since the late 1990s over the past 12 months and the jobless rate dropped to a six-and-half year low of 5.5% in February from a high of 10% in 2009.

Notably, the total number of jobs created during November through January recorded the largest three-month gain since 1997. Further, stepped-up economic activities, rising business and consumer confidence, record corporate profits, and recovering housing fundamentals are continuously injecting optimism into the economy.

Apart from domestic fundamentals, improving global conditions buoyed by monetary easing policies also helped the U.S. stocks to move higher. In particular, Japan came out of recession and sentiments are turning bullish on Europe backed by a slew of positive economic indicators and a four-month Greece bailout extension. Further, Russia is finding its footing this year while India and China continue to show resilience. Even oil has rebounded from its multi-year low after a seven-month brutal plunge.

Though the Fed is on track to raise interest rates later in the year, uncertainty about the actual timing of interest rates hike is a global concern, and might keep returns at check. In fact, the yield on 10-year Treasury bonds has risen 33% in the past five weeks (ending March 6), representing the sharpest 5-week increase in 20 years (read: 3 ETFs to Watch on Rising Rates).

Further, diverging central bank policies between the U.S. and the other developed and developing nations have intensified the currency war. This is propelling the U.S. dollar to multi-year highs against the basket of currencies. Given the fears of rate hike and strengthening dollar, the U.S. stocks tumbled as the bull market entered its seventh year. In fact, the S&P 500 (SPY) and Dow Jones (DIA)  dropped over 1.7% in yesterday’s trading session, erasing all the gains made so far this year.

Given this sudden bout of volatility, investors should look at the ETFs of the top-performing sectors.

How to Find Top-Performing Sectors

While identifying the top-performing sector is a daunting task, the Zacks Industry Rank makes this process simpler. First, we have to find out the best industries that have earned top Zacks ranks. The Zacks Industry Rank is determined by calculating the average Zacks Rank for all of the stocks in the industry and then assigning an ordinal rank to it.

A top Zacks Industry Rank means that more stocks within that group are seeing upward earnings estimate revisions. Since an industry is a group of stocks in a similar business, this is the perfect way to size up an industry (read: all the Top Ranked ETFs).

The Zacks Industry classification divides the business world into 16 sectors comprising 60 medium or M-level industries and 260 plus or X-level industries. We rank all 260 plus X-level industries based on the earnings outlook of the constituent companies in each industry. Lower scores are always better. The industry having rank of 2.00–2.64 and 2.65–2.81 indicates that these are very attractive and attractive, respectively, and thus the top-performing ones.

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