4 Sector ETFs That Beat The Market In 1H

After peaking in the first month of the year, Wall Street was caught in a vicious circle of volatility that stemmed from inflationary expectations and trade war fears. In fact, the three major large cap indices slipped into the correction territory in February. However, two of these have recouped the losses since then.

The Nasdaq Composite has been the outperformer in the first six months of 2018, gaining more than 9% while the S&P 500 rose 1.7%. Dow Jones logged in the worst first-half performance since 2010, losing 2%. Small cap stocks, as indicated by the Russell 2000, turned out to be investors’ darling and climbed up 7%.

The tension between the United States and some of its major trading partners has shaken the market in the past four months and is likely to do so going ahead in the second half. This is because the tit-for-tat tariff situation has turned hostile with the world’s largest countries announcing tariffs on billions of dollars’ worth of imports that are likely to take effect Jul 6. Additionally, the Trump administration imposed tariffs on steel and aluminum imported from the European Union, Canada and Mexico in June, and each retaliated with their own tariffs on American goods.

However, strong corporate profits, accelerating economic growth, Trump’s tax cuts and higher oil price continued to support the stocks.

In such a scenario, we have highlighted four sector ETFs that have outperformed the market in the first half and could be better plays in the months ahead should the trends prevail.  

Invesco S&P SmallCap Health Care ETF (PSCH - Free Report) – Up 30.4%

This ETF got a boost from the dual tailwinds of its sector’s non-cyclical nature and its small-cap focus. Small-cap stocks are well insulated from headwinds as we are currently seeing including trade war fears, tariff concerns, and geopolitical tensions. These stocks are considered safe and better plays if any political issue or economic turmoil creeps into the picture. Additionally, encouraging sector fundamentals, tax reform, rising M&A activities and positive regulatory backdrop added to the strength.

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