Top-Ranked Sector ETFs & Stocks To Buy For 2017

The rally that the U.S. stock market greeted the New Year seems to be fizzling out thanks to Trump’s first press conference that dampened investor optimism. So, the same old story of volatility and uncertainty is being written all over again for 2017.

The U.S. economy is clearly on a solid footing buoyed by an impressive labor market, rising wages, slowly rising inflation and increasing consumer spending. Americans have an optimistic view about the economy with confidence hitting the highest level in 12 years. Additionally, the combination of other factors like return to the earnings growth era, pro-growth policy, the jump in oil price and the rise in interest rates have added to the strength.

Nevertheless, skepticism about Trump’s ability to keep his promises, the possibility of a trade war, geopolitical tensions, volatility in oil price, a strong dollar and global growth concerns would continue to weigh on investors’ sentiment.

Given this, investors could be well served by looking at the ETFs and stocks of the top-ranked sectors.

How to Find the Top-Performing Sectors

While identifying the top-performing sector is a daunting task, the Zacks Industry Rank makes this process simpler. The Zacks Industry Rank is determined by calculating the average Zacks Rank for each stock in the industry and then assigning a rank to it. So first, we selected the best industries that have a top Zacks Rank.

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 it up.

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. Lower scores are always better. Industries with ranks of 2.00–2.64 and 2.65–2.81 are very attractive and attractive, respectively, and are thus the top-performing ones.


Financials is the most attractive sector at present with INVEST BKRS-MGRS, BANKS & THRIFTS and BANKS-MAJOR leading the way. This is because these are backed by the dual tailwinds of Trump’s policies and a rising rate environment. Trump seeks to deregulate the industry and dismantle the Dodd-Frank Act, which was enacted in the aftermath of the financial crisis and crimped some of the business lines of banks while the central bank has signaled for a faster pace of rate increase this year.

SPDR S&P Regional Banking ETF (KRE - Free Report) : The fund appears the top pick of this trend. This is one of largest and the most popular ETFs in the banking space with AUM of $3.5 billion and average daily volume of 6.4 million shares a day. It tracks the S&P Regional Banks Select Industry Index. Holding 101 securities in its basket, the fund is widely spread out across various components with none holding more than 3.7%. It charges 35 bps a year in fees and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a High risk outlook.

Fifth Street Asset Management Inc. (FSAM - Free Report) : This Zacks Rank #2 (Buy) company is an alternative asset manager that provides flexible financing solutions to small and mid-sized companies. It saw positive earnings estimate revisions of 13 cents for 2017 over the past 90 days, and has an above-average growth rate of 5.63%. The stock has a VGM Style Score of A.


The materials sector got a bump from rebounding commodity prices, positive developments in China, a pick-up in global manufacturing activities and improving worldwide trends. Additionally, Trump’s pro-growth policies to revive U.S. manufacturing and rehabilitate the country’s aging infrastructure have added to its strength. Steel and METALS-NON FERROUS are the most attractive sectors at present, followed by agribusiness.

PowerShares S&P SmallCap Materials Fund (PSCM - Free Report) : This is a small cap centric fund that tracks the S&P SmallCap 600 Capped Materials Index. It holds 38 securities in its basket with each holds less than 7.4% share. In terms of industrial exposure, chemicals dominates half of the portfolio while metals & mining and paper & forest products round off the next two spots with 23.6% and 20.2%, respectively. The ETF has accumulated $99.5 million in its asset base and has an expense ratio of 0.29%. Volume is low with 22,000 shares exchanged a day on average. It has a Zacks ETF Rank of 1 with a High risk outlook.

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