4 Sector ETFs Surviving the Market Rout in 2018

After a roaring start to 2018, U.S. stocks faltered on higher interest rates and escalation in U.S.-China tit-for-tat tariff dispute. The decline aggravated in the fourth quarter given that a combination of other factors including rounds of tech sell-off, geopolitical tensions, political malaise in Europe, slowdown in Japan and emerging markets, threats of global slowdown, and flattening of the U.S. yield curve created tensions in the equity world.

Oil has slipped into the bear territory leading to further caution among investors. Additionally, the lower-than-expected Fed’s dovish view for the next year in the latest FOMC meeting have also made investors jittery. The pessimism spreading across Wall Street has sent the S&P 500 and Nasdaq to the bear territory (read: Not a Merry Christmas for Wall Street: Bet on These ETFs).

With this slump, the S&P 500 is on track for its first annual loss in a decade while the Dow Jones is expected to log its worst year since 2008.

While most of the sectors are in red this year, a few ETFs are easily surviving the market rout. We have highlighted them in detail below as these could be better plays heading into the New Year, should the trends prevail.

Invesco Dynamic Software ETF PSJ – Up 7.6%

Though the technology sector has been on a tumultuous ride in recent months, the rapid adoption of cutting-edge technology and holiday spirit was unable to take sheen away from ETFs that employ some unique/smart approach or have less exposure to the big players. PSJ is one of them that offer exposure to companies engaged in the research, design, production or distribution of products or processes related to software applications and systems and information-based services.

With AUM of $232.1 million, this ETF provides exposure to 30 software segments of the broader U.S. technology space with each accounting less than 5.3% share. It charges 63 bps in annual fees and trades in average daily volume of 46,000 shares. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: A Look at the Christmas Tree of Top-Ranked ETFs).

iShares U.S. Medical Devices ETF IHI – Up 6.1%

Healthcare, which generally outperforms during periods of low growth and high uncertainty, garnered investors’ interest due its non-cyclical nature this year. This is because the demand for healthcare services remains intact even amid deteriorating economic fundamentals. While most of the ETFs in this sector are shining, IHI is the winner.

The fund provides exposure to U.S. companies that manufacture and distribute medical devices by tracking the Dow Jones U.S. Select Medical Equipment Index. In total, the fund holds 57 securities in its basket with concentration on the top two firms at more than 9% share. It has managed assets worth $2.4 billion while charging 43 bps in fees per year. Volume is good as it exchanges about 173,000 shares in hand per day. The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Invesco S&P 500 Equal Weight Utilities ETF RYU – Up 3.5%

The utilities sector is making the most of the uncertainty lingering around this year. Being a low-beta sector, it is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil.

RYU provides exposure to 29 utilities stocks with an equal-weight methodology by tracking the S&P 500 Equal Weight Index Telecommunication Services & Utilities Index. Electric utilities and multi utilities make up for the top two sectors with 52.1% and 38% share, respectively. The fund has been able to manage $254.7 million in its asset base while trading in lower volume of around 33,000 shares a day. Expense ratio comes in at 0.40%. RYU has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Utility ETFs Scale New Highs Amid Rising Volatility).

VanEck Vectors Uranium+Nuclear Energy ETF NLR – Up 2.4%

Uranium breaks its trend of rising global inventories this year with the first production deficit in more than a decade. This coupled with Chinese nuclear operator plans pushed NLR higher. The fund provides targeted exposure to the nuclear energy utility companies with a little portion in uranium miners. It follows the MVIS Global Uranium & Nuclear Energy Index and holds 25 securities in its basket. The fund is moderately concentrated on the top 10 holdings at 62.5%.

American firms dominate the portfolio with 52.5% of assets, while Japan takes a substantial 17% share. The product is often overlooked by investors as depicted by AUM of $25.1 million and average daily volume of about 2,000 shares. It charges 61 bps in fees per year from investors.

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VANECK-URNM+NUC (NLR): ETF Research Reports
 
ISHARS-US MED D (IHI): ETF Research Reports
 
GUGG-SP5 EW UTL (RYU): ETF Research Reports
 
PWRSH-DYN SFTWR (PSJ): ETF Research Reports
 
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