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Best ETFs & Stocks from Top Sectors of Q1

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The first quarter was great for the U.S. stock market with the major benchmarks logging in the best quarterly performance in many years despite a sluggish March. Particularly, S&P 500 notched its best three-month stretch since the fourth quarter of 2015 and the Nasdaq Composite index had its best quarter since the end of 2013 (read: Top ETF Stories of Q1 from Wall Street).

The performance can be credited to Trump-fueled rally, strong earnings growth, and encouraging macro trends that have bolstered investor’s appetite for riskier assets. The U.S. economy is on solid ground buoyed by an impressive labor market, increase in wages, rise in inflation, and increasing consumer spending. Americans have an optimistic view about the economy with confidence soaring to a more than 16-year high.

While many corners of the equity world witnessed a torrid run, a few sectors performed incredibly, comfortably crushing the broader markets. Below, we have highlighted four sectors and their related ETFs & stocks that have been the quarter’s star performers and could also be better performers in the next quarter (see: all the Categories ETF here).

Biotechnology

The biotech sector made a strong comeback this year driven by cheap valuation, robust earnings results, as well as Trump’s move to reduce drug regulations and push for faster drug approvals. Additionally, encouraging industry trends, including the possibility of increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, the growing middleclass, an insatiable demand for new drugs, and an ever-increasing health care spending, are fueling growth in the sector.

BioShares Biotechnology Clinical Trials ETF (BBC - Free Report) : This fund has a novel approach to biotechnology investing with exposure to companies in the clinical trials stage. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. Holding 70 stocks in its basket, the fund is widely spread across various components with none holding more than 3.3% share. BBC is a small-cap centric fund, having amassed $24.3 million in its asset base. It charges 85 bps in fees per year from investors and trades in light average daily volume of around 14,000 shares. The fund has gained nearly 26% in the first quarter and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: 5 Top Performing Stocks of the Best ETF of Q1).

Calithera Biosciences Inc. (CALA - Free Report) : Based in South San Francisco, California, Calithera Biosciences is a clinical-stage pharmaceutical company focused on discovering and developing small molecule drugs directed against tumor metabolism and tumor immunology targets for the treatment of cancer. The stock saw positive earnings estimate revision of 22 cents for this year over the past 90 days, with an expected growth rate of a 39.23%. The stock surged 257% this year and has a solid Zacks Rank #2 (Buy) with a VGM Style Score of F.

Construction

The homebuilding and construction sector has been on tear given the growing demand for both new and existing homes. Increased hiring, rise in wages and ongoing job creation will continue to fuel growth in the homebuilding sector. Additionally, slower and gradual rate hikes is adding to the strength (read: Is Spring Selling Season Opening Room for Housing ETFs?).

iShares U.S. Home Construction ETF (ITB - Free Report) : This fund provides a pure play to home construction stocks by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 44 stocks with double-digit allocation going to the top two firms. Other firms hold not more than 8% of assets. The product has amassed $1.4 billion in its asset base and trades in heavy volume of around 2.6 million shares a day on average. It charges 44 bps in annual fees and gained 16.5% in the first quarter. The fund has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a High risk outlook.

TopBuild Corp. (BLD - Free Report) : Based in Daytona Beach, Florida, TopBuild is the installer and distributor of insulation products to the construction industry primarily in the United States. The stock saw positive earnings estimate revision of 8 cents for this year over the past three months with an expected growth rate of a 25.85%. It has a solid Zacks Rank #1 but a dismal VGM Style Score of D. The stock has gained 31.2% in the first quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Technology

Technology sector continued to hold the top spot for investors’ thanks to stronger earnings, compelling valuation, and emergence of new technology such as wearables, VR headsets, drones, and virtual reality devices. Additionally, the sector is benefiting from dual tailwind of rising interest rate scenario and Trump’s proposed corporate tax reform, which could allow companies to bring back cash being held overseas at lower rates. Most of these tech companies are sitting on a huge cash pile ensuring that these are not plagued by financial trouble in a rising interest rate environment.

iShares North American Tech-Software ETF (IGV - Free Report) : This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a basket of 56 securities with each holding not more than 9% share. It is quite popular with AUM of $815.3 million, while average daily volume is nearly 160,000 shares. The product charges 48 bps in annual fees and gained 16.2% in the first quarter. It carries a Zacks ETF Rank of 3 with a High risk outlook (read: Buy Hot Tech ETFs to Avoid Trump Uncertainties).

Rocket Fuel Inc. : Based in Redwood City, California, Rocket Fuel is a leading provider of artificial intelligence advertising solutions for digital marketers. The stock saw a positive earnings estimate revision from a loss of $1.02 to a loss of 81 cents for this year in the last 90 days with an expected growth rate of 12.90%. It has a solid Zacks Rank #2 with a VGM Style Score of B. Shares of FUEL have risen 205.8 in the first quarter (read: Rocket Fuel Looks Good: Stock Adds 6% in Session).

Materials

The materials sector got a bump from rebounding commodity prices, positive developments in China, pick-up in global manufacturing activities and improving global trends. Additionally, Trump’s pro-growth policies to revive U.S. manufacturing and rehabilitate the country’s aging infrastructure added to its strength. Particularly, gold recorded the biggest quarterly gain of 8% since the first quarter of 2016 and represents the eighth first quarter gain in 10 years. Volatility, fears over political instability and revived Chinese demand bode well for the yellow metal in the quarter. Additionally, the Fed’s less-than-expected hawkish outlook ushered a strong momentum in the space.

Global X Gold Explorers ETF (GOEX - Free Report) : The ETF provides exposure to companies involved in the exploration of gold deposits and tracks the Solactive Global Gold Explorers & Developers Total Return Transition Index. Holding 52 stocks in its basket, it is focused on small cap and each security accounts for less than 5.4% of assets. Canadian firms dominate the fund’s return at 67% followed by Australia and United Kingdom. The fund is unpopular and illiquid with AUM of $45.4 million and average daily volume of around 21,000 shares. Expense ratio comes in at 0.66%. GOEX was up 15.3% in the first quarter (read: What Lies Ahead for Gold Mining ETFs?).

The Chemours Company (CC - Free Report) : Based in Wilmington, Delaware, Chemours Company provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. The stock saw an impressive earnings estimate revision of 80 cents in the last 90 days for this year, with an expected growth rate of 184.31%. It has climbed 72.7% in the first quarter and has a Zacks Rank #1 with a VGM Style Score of A.

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