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U.S. Producer Prices Up: ETFs in Focus

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A measure of U.S. wholesale price inflation ticked up in June. U.S. producer prices rose in June, owing to increases in the cost of services. Prices for services edged up 0.2% in June, contributed almost 80% of the increase in the index.


In June 2017, the producer price index (PPI) grew 2% year over year compared with 2.4% in May. It increased 0.1% in June on a monthly basis. Per a Reuters poll, economists expected a 1.9% year-over-year growth and no change on a monthly basis.


On the other hand, core inflation which excludes impact of volatile items like food and energy grew 1.9% year over year in June and 0.1% on a monthly basis.


Although the PPI is generally not indicative of the prices consumers pay, as it records the prices businesses receive from all their customers, it still follows the general inflation trend. Federal Reserve chair Janet Yellen indicated to Congress on July 12, 2017 that Fed officials plan to keep increasing short-term interest rates but want to see inflation near their 2% annual target.


She also believes that the U.S. economy is strong enough to withstand Fed’s unwinding of its huge $4 trillion bond portfolio. Economists expect another rate hike in December and a plan to go about the bond sales by September (read: U.S. Services PMI up in June: ETFs in Focus).


Moreover, data released last week showed that there was a decline in the number of people applying for jobless benefits to 247,000 from 250,000.


Let us now discuss a few ETFs focused on providing exposure to U.S. equities (read: ETF Asset Report : Developed Markets Rule in Q2).


SPDR S&P 500 ETF (SPY - Free Report)


This fund is the most popular ETF traded in the U.S. markets. It seeks to provide exposure to the largest and most stable companies and tracks the S&P 500 index.


It has AUM of $237.31 billion and charges a fee of 9 basis points a year. From a sector look, the fund has high exposures to Information Technology, Financials and Health Care with 22.77%, 14.54% and 14.41% allocation, respectively (as of July 12, 2017). The fund’s top three holdings are Apple Inc (AAPL - Free Report) , Microsoft Corporation (MSFT - Free Report) and Amazon.com Inc (AMZN - Free Report) with 3.63%, 2.62% and 1.91% allocation, respectively (as of July 12, 2017). The fund has returned 13.25% in the last one year and 9.35% year to date (as of July 13, 2017). It currently has a Zacks ETF Rank 2 (Buy) with a Medium risk outlook (read: Amazon's Foray Into Grocery to Hurt/Help These Stocks & ETFs).


iShares Core S&P 500 ETF (IVV - Free Report)


This fund is a low cost ETF that seeks to provide exposure to large established U.S. companies and tracks the S&P 500 index.


It has AUM of $117.84 billion and charges a fee of 4 basis points a year. From a sector look, the fund has high exposures to Information Technology, Financials and Health Care with 22.69%, 14.48% and 14.38% allocation, respectively (as of July 12, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation and Amazon.com Inc with 3.62%, 2.62% and 1.90% allocation, respectively (as of July 12, 2017). The fund has returned 13.36% in the last one year and 9.35% year to date (as of July 13, 2017). It currently has a Zacks ETF Rank 2 with a Medium risk outlook.


PowerShares QQQ ETF (QQQ - Free Report)


This fund is a popular ETF that maintains a hefty exposure to U.S. tech companies and tracks the Nasdaq 100 index.


It has AUM of $53.95 billion and charges a fee of 20 basis points a year. From a sector look, the fund has high exposures to Information Technology, Consumer Discretionary and Health Care with 58.1%, 22.14% and 11.26% allocation, respectively (as of July 12, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation and Amazon.com Inc with 11.48%, 8.30% and 7.27% allocation, respectively (as of July 12, 2017). The fund has returned 26.13% in the last one year and 19.02% year to date (as of July 13, 2017). It currently has a Zacks ETF Rank 1 (Strong Buy) with a Medium risk outlook.


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