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ETF Winners & Losers Amid Cooling U.S. Inflation

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Consumer prices in the United States rose 1.8% year over year in May 2019, down from 1.9% in April and below market expectations of 1.9%. Barring food and energy, core prices went up 2% in May, below the market consensus of 2.1%. Sequentially, consumer prices climbed 0.1%, down from 0.3% in April and in line with expectations.

Energy prices dropped 0.5%, following a 1.7% rise in the previous month. Within energy commodities, gasoline cost dropped 0.2% (versus 3.1% in April) and fuel oil declined 0.8% (vs 0.9% fall in April).Food inflation rose to 2.0% in May from 1.8% in April. 

Below we highlight a few areas and their related ETFs that gained or lost from this inflation report.

Winners

F&B – Invesco Dynamic Food & Beverage ETF (PBJ - Free Report)

There was an increase in the index for food away from home in May, though at a weaker pace. Food away from home was 2.9% versus 3.1% in April. This should bode well for this food ETF. The underlying index of the fund comprises stocks of 30 U.S. food and beverage companies. These are companies that are principally engaged in the manufacture and sale of food and beverage products, agricultural products and products related to the development of new food technologies. The fund added about 0.4% on Jun 12 (read: ETFs in Focus After Starbucks' Q2 Earnings Report).

Agriculture – Invesco DB Agriculture Fund (DBA - Free Report)

Inflation of food at home accelerated in May (1.2% vs 0.7%), implying higher prices of agricultural commodities. Investors should note that broader agricultural ETF DBA, which iscomposed of futures contracts on some of the most liquid and widely traded agricultural commodities, added 7.7% in the past month. The fund was up 0.54% on Jun 12 (read: Mexico Tariff Plan Dropped: ETF Areas to Win).

Airlines – U.S. Global Jets ETF (JETS - Free Report)

Falling energy prices is a blessing for airlines ETF. If there are no further flare-ups in trade tensions, JETS may gain ahead. The fund rose about 0.4% on Jun 12.

Treasuries – iShares 3-7 Year Treasury Bond ETF (IEI - Free Report)

U.S. Treasuries gained on the news, dragging yields lower. The wager on Fed rate cut strengthened. U.S. 5-year treasury yield in fact slumped to 1.88% on Jun 12 from 1.92% a day earlier. The medium-term Treasury bond ETF IEI added about 0.2% on the day. The fund has a Zacks ETF Rank #3 (Hold) (read: ETFs to Win After Soft May Jobs Data).

Losers

Auto – First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report)

Inflation slowed for new vehicles (0.9% versus 1.2%) and used cars and trucks (0.3% versus 0.8%). This is a negative for auto ETF. The underlying NASDAQ OMX Global Auto Index is designed to track the performance of the largest and most liquid companies engaged in manufacturing of automobiles. The fund was down 0.8% on Jun 12.

Apparel – SPDR S&P Retail ETF (XRT - Free Report)

Declines in prices were also seen for apparel (down 3.1% vs down 3.0%). Since the fund puts 21.2% weight in the apparel industry, the fund is in a sticky situation now. It lost about 0.3% on Jun 12 (read: Q1 Earnings Fail to Boost Retail ETFs).

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