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ETFs to Benefit as Inflation Drops to One-Year Low
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Inflation in the United States is cooling down gradually, underscoring that the worst of inflation has likely passed and the economy will be back on track sooner than expected. This is especially true as the consumer price index (“CPI”) jumped 7.1% year over year in November, down from a 7.7% year-over-year increase in October and a recent peak of 9.1% in June. This represents the lowest annual increase since late 2021.
The data has bolstered hopes that the Fed many not have to raise interest rates much further in order to bring it back under control. Much of the relief came from declining energy prices as the energy index dipped 1.6% due to a drop in gasoline, natural gas, and electricity. While enrgy prices dropped, an increase in costs for shelter and food rose sharply. The food index climbed 0.5%, while shelter costs, which comprise nearly a third of the index, rose 0.6%.
Prices for cereals and bakery products rose at an annual rate of 16.4%, up from 15.9% year-over-year growth in October. Costs for fruits, vegetables and dairy products also rose faster last month on a year-over-year basis than they did the month before. However, grocery inflation came in at its lowest level since May, with the annual food-at-home price index now down for three months in a row after hitting a multidecade high of 13.5% in August.
The so-called core inflation, which strips out volatile components such as food and energy prices, rose 6% from the year-ago level and 0.2% from October.
The cooling inflation has ignited hopes that the Fed might slow down the pace of its interest-rate increases. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. A slowdown in the pace of rate hikes will provide some support to the yellow metal (read: Gold ETFs Shining on Bullion's Biggest Monthly Gain in 2 Years).
SPDR Gold Trust ETF tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF with AUM of $52.4 billion and a heavy volume of about 5 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
This ETF will continue to get a boost from rising food prices. First Trust Nasdaq Food & Beverage ETF offers exposure to U.S. companies within the food and beverage industry. It tracks the Nasdaq US Smart Food & Beverage Index, holding 30 securities in its basket, with each accounting for less than 8.3% share.
First Trust Nasdaq Food & Beverage ETF has AUM of $968.2 million and charges 60 bps in annual fees. It sees an average daily volume of about 128,000 shares and has a Zacks ETF Rank #2 (Buy).
Homebuilder ETF will get dual advantage from falling inflation and a higher shelter cost. Falling inlftaion will keep the mortgage rates low, making home ownership less expensive for first-time buyers, while higher shelter costs will provide homebuilders an edge to negotiate well (read: Can Homebuilding ETFs Rebound Ahead?).
iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With an AUM of $1.3 billion, it holds a basket of 47 stocks with a heavy concentration on the top two firms. iShares U.S. Home Construction ETF charges 39 bps of annual fees and trades in a heavy volume of around 2.3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #4 (Sell) with a High-risk outlook.
The technology sector, which has been battered this year due to rising rates, will likely get some relief from the slower pace of rate hikes. As such, XSD seems a prudent choice. SPDR S&P Semiconductor ETF offers exposure to the semiconductor segment of the broad technology sector and tracks the S&P Semiconductor Select Industry Index. It holds 38 stocks in its portfolio. SPDR S&P Semiconductor ETF has AUM of $1.1 billion and an average daily volume of about 57,000 shares.
SPDR S&P Semiconductor ETF charges 35 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.
Growth investing will regain momentum, given the renewed appeal for riskier assets. Invesco S&P 500 Pure Growth ETF offers exposure to the companies that exhibit strong growth characteristics in the S&P 500 Index. It tracks the S&P 500 Pure Growth Index and holds 59 stocks in its basket, with none making up for less than 5% of assets. Here again, information technology dominates the portfolio with 37.2% of its assets, while healthcare and consumer discretionary round off the next two spots with double-digit exposure each (read: 5 Top-Ranked ETFs to Buy for December).
Invesco S&P 500 Pure Growth ETF has amassed $2.3 billion in its asset base and trades in a good average volume of around 91,000 shares a day. The product charges 35 bps in fees a year from investors and has a Zacks ETF Rank #2 with a Medium risk outlook.
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ETFs to Benefit as Inflation Drops to One-Year Low
Inflation in the United States is cooling down gradually, underscoring that the worst of inflation has likely passed and the economy will be back on track sooner than expected. This is especially true as the consumer price index (“CPI”) jumped 7.1% year over year in November, down from a 7.7% year-over-year increase in October and a recent peak of 9.1% in June. This represents the lowest annual increase since late 2021.
The data has put focus on ETFs like SPDR Gold Trust ETF (GLD - Free Report) , First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report) , iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Semiconductor ETF (XSD - Free Report) , and Invesco S&P 500 Pure Growth ETF (RPG - Free Report) . These funds are likely to benefit from easing inflation and the resultant dovish Fed (read: ETFs to Watch in This Fed and Inflation Busy Week).
Behind the Inflation Numbers
The data has bolstered hopes that the Fed many not have to raise interest rates much further in order to bring it back under control. Much of the relief came from declining energy prices as the energy index dipped 1.6% due to a drop in gasoline, natural gas, and electricity. While enrgy prices dropped, an increase in costs for shelter and food rose sharply. The food index climbed 0.5%, while shelter costs, which comprise nearly a third of the index, rose 0.6%.
Prices for cereals and bakery products rose at an annual rate of 16.4%, up from 15.9% year-over-year growth in October. Costs for fruits, vegetables and dairy products also rose faster last month on a year-over-year basis than they did the month before. However, grocery inflation came in at its lowest level since May, with the annual food-at-home price index now down for three months in a row after hitting a multidecade high of 13.5% in August.
The so-called core inflation, which strips out volatile components such as food and energy prices, rose 6% from the year-ago level and 0.2% from October.
ETFs in Focus
SPDR Gold Trust ETF (GLD - Free Report)
The cooling inflation has ignited hopes that the Fed might slow down the pace of its interest-rate increases. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. A slowdown in the pace of rate hikes will provide some support to the yellow metal (read: Gold ETFs Shining on Bullion's Biggest Monthly Gain in 2 Years).
SPDR Gold Trust ETF tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF with AUM of $52.4 billion and a heavy volume of about 5 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report)
This ETF will continue to get a boost from rising food prices. First Trust Nasdaq Food & Beverage ETF offers exposure to U.S. companies within the food and beverage industry. It tracks the Nasdaq US Smart Food & Beverage Index, holding 30 securities in its basket, with each accounting for less than 8.3% share.
First Trust Nasdaq Food & Beverage ETF has AUM of $968.2 million and charges 60 bps in annual fees. It sees an average daily volume of about 128,000 shares and has a Zacks ETF Rank #2 (Buy).
iShares U.S. Home Construction ETF (ITB - Free Report)
Homebuilder ETF will get dual advantage from falling inflation and a higher shelter cost. Falling inlftaion will keep the mortgage rates low, making home ownership less expensive for first-time buyers, while higher shelter costs will provide homebuilders an edge to negotiate well (read: Can Homebuilding ETFs Rebound Ahead?).
iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With an AUM of $1.3 billion, it holds a basket of 47 stocks with a heavy concentration on the top two firms. iShares U.S. Home Construction ETF charges 39 bps of annual fees and trades in a heavy volume of around 2.3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #4 (Sell) with a High-risk outlook.
SPDR S&P Semiconductor ETF (XSD - Free Report)
The technology sector, which has been battered this year due to rising rates, will likely get some relief from the slower pace of rate hikes. As such, XSD seems a prudent choice. SPDR S&P Semiconductor ETF offers exposure to the semiconductor segment of the broad technology sector and tracks the S&P Semiconductor Select Industry Index. It holds 38 stocks in its portfolio. SPDR S&P Semiconductor ETF has AUM of $1.1 billion and an average daily volume of about 57,000 shares.
SPDR S&P Semiconductor ETF charges 35 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.
Invesco S&P 500 Pure Growth ETF (RPG - Free Report)
Growth investing will regain momentum, given the renewed appeal for riskier assets. Invesco S&P 500 Pure Growth ETF offers exposure to the companies that exhibit strong growth characteristics in the S&P 500 Index. It tracks the S&P 500 Pure Growth Index and holds 59 stocks in its basket, with none making up for less than 5% of assets. Here again, information technology dominates the portfolio with 37.2% of its assets, while healthcare and consumer discretionary round off the next two spots with double-digit exposure each (read: 5 Top-Ranked ETFs to Buy for December).
Invesco S&P 500 Pure Growth ETF has amassed $2.3 billion in its asset base and trades in a good average volume of around 91,000 shares a day. The product charges 35 bps in fees a year from investors and has a Zacks ETF Rank #2 with a Medium risk outlook.