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Top and Flop Zones at Half-Way Q3 & Their ETFs

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Global stocks were off to a solid start in the third quarter buoyed by a roaring American stock market. The combination of unprecedented fiscal and monetary stimulus in response to the pandemic, hopes of a swift economic rebound and high chances of a successful coronavirus vaccine drove the stocks higher. Additionally, a booming technology sector, the rise in mergers and acquisitions, better-than-expected earnings and a weak dollar also added to the strength.

In particular, the Nasdaq Composite Index hit new record highs last month to cross the 11,000 milestone. The Nasdaq's march from 10,000 to 11,000 has been the fastest ever in 20 years. The benchmark hit 10,000 on Jun 10 and took 40 trading days to climb to the 1,000 point. Meanwhile, the S&P 500 joined the Nasdaq to hit all-time highs this week. The benchmark saw a sharp rebound from the trough seen in March to a new peak in just 126 trading days, marking the fastest-ever recovery from a bear market in the history of the index (read: S&P 500 Hits New Record Highs: Top-Ranked ETF Winners).

In the commodity world, precious metals showed their strength though they lost their attractiveness in recent weeks. Gold touched an all-time high of more than $2,000 per ounce while silver jumped to the highest level in seven years. Massive liquidity injections by central banks across the globe, hopes of further stimulus and weakness in the U.S. dollar against major global currencies supported the price of metals.

Given this, we have highlighted the best and worst performing zones and their ETFs halfway through the third quarter:

Best Zones

Silver

Silver has been outperforming gold this quarter as increase in investment and industrial demand proved advantageous. Additionally, the global push for green energy, growing demand in areas like 5G, and new sources of demand for sensors used in IoT and OLED lighting will continue to boost the requirement of silver. Silver is largely used for manufacturing of solar panels and electronics.

While many silver ETFs have been surging, Aberdeen Standard Physical Silver Shares ETF (SIVR - Free Report) is leading with 46.7%. This fund has AUM of $879.9 million and trades in moderate volume of around 990,000 shares per day on average. It tracks the performance of the price of silver less the Trust expenses. Expense ratio is 0.30%. SIVR has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Silver ETFs or Gold: Which Metal to Shine More Ahead?).

Solar Energy

The solar industry has been on fire buoyed by solid earnings coupled with the presumptive Democratic presidential candidate Joe Biden’s push for clean energy and infrastructure plans. Invesco Solar ETF (TAN - Free Report) has risen 44.1% so far this quarter. This ETF offers global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 27 stocks in the basket. American firms dominate with half of the fund’s portfolio, followed by China (22.4%) and Spain (7.4%). The product has amassed $1.1 billion in its asset base and trades in a solid volume of around 548,000 shares a day. It charges investors 71 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Consumer Cyclical

After months of dominance by the tech sector, cyclical sectors are taking charge this month. This is especially true as the latest rounds of data signals that the economy is stabilizing amid the lingering coronavirus crisis, providing enough impetus to economic-sensitive sectors. Notably, the cyclical sectors are tied to economic activities and when growth improves, these perform well. Invesco DWA Consumer Cyclicals Momentum ETF (PEZ - Free Report) has been the clear winner of this trend, jumping 42.5% so far in the third quarter (read: Wall Street's Best 100 Days Since 1933: ETF Winners).

This product tracks the DWA Consumer Cyclicals Technical Leaders Index. It holds 44 stocks having positive relative strength (momentum) characteristics. About 30.2% of the portfolio is dominated by specialty retail while Internet & direct marketing retail, hotel, restaurants and leisure, and automobiles round off the next three positions. The fund has managed $43.1 million in its asset base while trading in a lower average daily volume of 7,000 shares. It charges 60 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Worst Zones

Volatiity

Volatility products have been the losers to start the third quarter even though coronavirus cases have resurged. In particular, iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) has plunged 27%. It focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months of VIX futures contracts. This ETN is unpopular and illiquid with AUM of $970 million and average daily volume of 28.7 million shares. The note charges 89 bps in annual fees.

Master Limited Partnerships (MLPs)

MLPs lost investor attention due to cuts in yields by midstream partners. As such, Credit Suisse S&P MLP ETN (MLPO - Free Report) has declined 14.1%. This ETN is linked to the S&P MLP Index, which includes both master limited partnerships and publicly traded limited liability companies having a similar legal structure to MLPs and sharing the same tax benefits as MLPs. It is unpopular and illiquid in the MLP space with AUM of $17.1 million and average daily volume of under 1,000 shares. The note charges 95 bps in annual fees (read: Top and Flop ETFs to Start Third Quarter).

Turkey

Turkish stocks were the losers on concerns over the country’s currency lira, which has dropped to the lowest-ever level against the U.S. dollar. As such, iShares MSCI Turkey ETF (TUR - Free Report) , which follows the MSCI Turkey IMI 25/50 Index, has lost 9.2% so far this quarter. It holds 42 stocks in its basket with AUM of $190.6 million and charges 59 bps in fees per year from investors. Volume is moderate at 250,000 shares a day on average.

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