Top Sectors Of 2015 And Their Leading ETFs

After a spectacular six-year bull run, the stock market was subject to severe stress this year, leading to bouts of volatility and heightened uncertainty. It all started with the relentless slide in crude oil, political turmoil in Greece, a strong dollar, weak corporate earnings, lofty valuations, Fed uncertainty, and then extended to geopolitical tensions and global growth concerns, especially in China.

In addition, the U.S. economy, which was growing at the fastest rate in over a decade in 2014, started to cool off this year. As a result, the S&P 500 (SPY) was relatively flat while Dow Jones (DIA) lost 1.2% in the year. While many corners of the equity world have seen lackluster trading, there are still some sectors that have easily crushed the broader markets.

Below, we have highlighted four sectors and their related ETFs that have been the year’s star performers and could be better plays into the New Year (see: all the Categories ETF here).

Healthcare ETFs
  
Despite the meltdown in September due to concerns over price gouging and increased regulatory scrutiny, the healthcare sector made a strong comeback in the past three months. The recovery came on the back of attractive valuations, strong earnings growth, merger & acquisition frenzy, and encouraging industry trends. These trends include promising drug launches, cost-cutting efforts, an aging population, ever-increasing demand for new drugs, higher healthcare spending, expansion into emerging markets and Obamacare.

While all the ETFs in the space have performed exceptionally well, ALPS Medical Breakthroughs ETF (SBIO - ETF reportemerged as the real winner. The fund targets companies with one or more drugs in phase II or phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. This small cap centric fund has amassed $170.6 million in its asset base in a year.

The product charges 50 bps in fees per year from investors and trades in a good average daily volume of around 138,000 shares. It holds 94 stocks in its basket with a spread-out exposure across a number of components as none of the securities holds more than 4.80% of assets. SBIO jumped 28.6% in 2015 and has a Zacks ETF Rank of 2 or ‘Buy’ rating (read: 5 Top Performing Stocks of the Top ETF of 2015).

Technology ETFs

Technology has been the second best performing sector of 2015. In an increasingly digitalized world, demand for novel and advanced technologies, such as, cloud computing, big data, smartphones, high-speed fiber networks and the Internet of Things is growing by leaps and bounds. This has given a huge impetus to the Internet corner of the broad technology space (read: 5 Tech ETFs & Stocks Clicking on All Cylinders in 2015).
 
In particular, First Trust Dow Jones Internet Index (FDN - ETF report) is leading the way higher having returned over 24% this year. The fund follows the Dow Jones Internet Composite Index, charging investors 54 bps in fees per year. In total, it holds a small basket of 42 securities with double-digit allocation each to Amazon (AMZN - Analyst Report) and Facebook (FB - Analyst Report). From a sector look, Internet mobile applications accounts for 51% share, closely followed by Internet retail (21%). The product has an AUM of 4.9 billion and trades in solid average daily volume of more than 638,000 shares. It has a Zacks ETF Rank of 2 with a High risk outlook.
 

Financial ETFs

The financial sector is a major beneficiary of a rising interest rate environment. This is because the steepening yield curve would bolster profits for banks, insurance companies, discount brokerage firms and asset managers. While excessive speculations of a rate hike benefited the sector on the whole, the insurance segment, which is not susceptible to economic downturns, was particularly at an advantage. As a result, PowerShares KBW Property & Casualty Insurance Fund (KBWP - ETF report) gained over 16%.

This fund provides targeted exposure to the property and casualty insurers by tracking the KBW Property & Casualty Index. Holding 24 securities, it is concentrated in the top five firms, which account for at least 8% share each. The fund is often overlooked by investors as depicted by AUM of $95.1 million and average daily volume of 27,000 shares. It charges 35 bps in annual fees from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

Alternative Energy ETFs

The oil price collapse, quite ironically though, has hit alternative energy stocks. But some interesting industry trends like increased investments in renewable energy, the historic Paris climate deal and the U.S. tax credit extension have built positive momentum in the space, giving a huge boost to wind energy ETFs like like First Trust ISE Global Wind Energy Index Fund (FAN - ETF report) (read: Inside the Recent Surge in Clean Energy ETFs).

FAN targets the wind energy industry by tracking the ISE Global Wind Energy Index. In total, the fund holds 44 stocks with each holding less than 7.9% share. European firms dominate the fund’s return at 66% while American firms make up a 13% share. FAN has managed $44.4 million in its asset base and charges 60 bps in fees per year from investors. Volume is paltry at about 20,000 shares. The fund has gained nearly 16% in 2015. 

Disclosure: None.

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