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Why Cyclical Sector ETFs Are Roaring to All-Time Highs
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The encouraging data from Moderna (MRNA - Free Report) and Pfizer (PFE - Free Report) over vaccine development has spurred buying in cyclical sectors, which are tied to economic activities. The late-stage trials showed that Moderna’s vaccine candidate was 94.5% effective against coronavirus while Pfizer’s potential vaccine was more than 90% effective.
The dual news has bolstered investors’ confidence in a swift economic rebound from a pandemic-led recession. A vaccine is being viewed as “a beginning to the end” of the coronavirus pandemic (read: Time to Rotate to Cyclical Sector ETFs?).
The potential for a divided Congress added to the strength. Democratic candidate Joe Biden is likely to gain the control of the White House having become the presumptive president-elect of the United States while Republicans may keep the Senate. The combination will lead to favorable economic policies with reduced chances of major tax increases and tighter regulations. Further, trillions of dollars injected into the economy are driving the rally.
The solid trend is likely to continue given the seasonal bullish pattern. This is especially true as November marks the start of the best six months for the Dow Jones and the S&P 500, and the best eight-month period for the Nasdaq, according to Almanac, citing “fourth-quarter cash inflows from institutions.” Seasonality plays a vital role in the stock market surge during the six-month period from November to April. Cyclical stocks from consumer discretionary, industrials, financials and energy tend to benefit the most. The “January effect” would also provide support to the stock market.
That said, we have presented five ETFs from different corners of the market that scaled new highs in the latest trading session and belong to cyclical sectors. The ascent might continue in the weeks ahead given the bullish trends.
iShares U.S. Industrials ETF (IYJ - Free Report) – All-Time High Price: $188.46
This product provides exposure to 182 industrial stocks by tracking the Dow Jones U.S. Industrials Index. It is tilted toward capital goods’ companies at 48.3% while software services and transportation round off the next two spots, with double-digit exposure each. The fund has an AUM of $1.1 billion and average daily volume of around 50,000 shares. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Can Industrial ETFs Gain Despite Mixed Q3 Earnings?).
This fund provides equal-weight exposure to 28 stocks in the materials sector by tracking the S&P 500 Equal Weight Materials Index. Chemicals dominates the fund’s portfolio with 54.7% of assets while containers & packaging, and metals & mining round off the next two spots. The fund has amassed $327.1 million in its asset base and charges 40 basis points in annual fees. It trades in average daily volume of 14,000 shares and has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares Dow Jones Transportation Average Fund (IYT - Free Report) – All-Time High Price: $219.91
The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. From a sector perspective, railroads, and air freight & logistics take the largest share with 36.1% and 31% share, respectively, while trucking and airlines round off the next two spots. The fund has $1.2 billion in AUM and sees a solid trading volume of around 279,000 shares a day. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Transport ETFs in Focus on Spate of Dismal Q3 Earnings Reports).
iShares U.S. Consumer Goods ETF (IYK - Free Report) – All-Time High Price: $158.84
This ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 96 stocks in its basket. The fund has amassed $660.3 million in its asset base while trades in a volume of about 31,000 shares. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Tesla ETFs Soar on S&P 500 Inclusion News).
This fund is by far the most popular choice in the space with an AUM of about $671.5 million and average daily volume of 83,000 shares. It tracks the MVIS Global Agribusiness Index, which offers exposure to companies, involved in agri-chemicals, animal health and fertilizers, seeds and traits, farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations, and trading of agricultural products. The fund holds 52 securities in its basket and charges 56 bps in annual fees.
Invesco Dynamic Media ETF - All-Time High Price: $40.97
This fund provides exposure to companies engaged in the development, production, sale and distribution of goods or services used in the media industry by tracking the Dynamic Media Intellidex Index. It holds 30 stocks in the basket. The product has been able to manage $40.2 million in its asset base while sees a lower volume of about 4,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #3 with a Medium risk outlook.
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Why Cyclical Sector ETFs Are Roaring to All-Time Highs
The encouraging data from Moderna (MRNA - Free Report) and Pfizer (PFE - Free Report) over vaccine development has spurred buying in cyclical sectors, which are tied to economic activities. The late-stage trials showed that Moderna’s vaccine candidate was 94.5% effective against coronavirus while Pfizer’s potential vaccine was more than 90% effective.
The dual news has bolstered investors’ confidence in a swift economic rebound from a pandemic-led recession. A vaccine is being viewed as “a beginning to the end” of the coronavirus pandemic (read: Time to Rotate to Cyclical Sector ETFs?).
The potential for a divided Congress added to the strength. Democratic candidate Joe Biden is likely to gain the control of the White House having become the presumptive president-elect of the United States while Republicans may keep the Senate. The combination will lead to favorable economic policies with reduced chances of major tax increases and tighter regulations. Further, trillions of dollars injected into the economy are driving the rally.
The solid trend is likely to continue given the seasonal bullish pattern. This is especially true as November marks the start of the best six months for the Dow Jones and the S&P 500, and the best eight-month period for the Nasdaq, according to Almanac, citing “fourth-quarter cash inflows from institutions.” Seasonality plays a vital role in the stock market surge during the six-month period from November to April. Cyclical stocks from consumer discretionary, industrials, financials and energy tend to benefit the most. The “January effect” would also provide support to the stock market.
That said, we have presented five ETFs from different corners of the market that scaled new highs in the latest trading session and belong to cyclical sectors. The ascent might continue in the weeks ahead given the bullish trends.
iShares U.S. Industrials ETF (IYJ - Free Report) – All-Time High Price: $188.46
This product provides exposure to 182 industrial stocks by tracking the Dow Jones U.S. Industrials Index. It is tilted toward capital goods’ companies at 48.3% while software services and transportation round off the next two spots, with double-digit exposure each. The fund has an AUM of $1.1 billion and average daily volume of around 50,000 shares. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Can Industrial ETFs Gain Despite Mixed Q3 Earnings?).
Invesco S&P 500 Equal Weight Materials ETF – All-Time High Price: $134.08
This fund provides equal-weight exposure to 28 stocks in the materials sector by tracking the S&P 500 Equal Weight Materials Index. Chemicals dominates the fund’s portfolio with 54.7% of assets while containers & packaging, and metals & mining round off the next two spots. The fund has amassed $327.1 million in its asset base and charges 40 basis points in annual fees. It trades in average daily volume of 14,000 shares and has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares Dow Jones Transportation Average Fund (IYT - Free Report) – All-Time High Price: $219.91
The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. From a sector perspective, railroads, and air freight & logistics take the largest share with 36.1% and 31% share, respectively, while trucking and airlines round off the next two spots. The fund has $1.2 billion in AUM and sees a solid trading volume of around 279,000 shares a day. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Transport ETFs in Focus on Spate of Dismal Q3 Earnings Reports).
iShares U.S. Consumer Goods ETF (IYK - Free Report) – All-Time High Price: $158.84
This ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 96 stocks in its basket. The fund has amassed $660.3 million in its asset base while trades in a volume of about 31,000 shares. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Tesla ETFs Soar on S&P 500 Inclusion News).
VanEck Vectors Agribusiness ETF (MOO - Free Report) – All-Time High Price: $74.30
This fund is by far the most popular choice in the space with an AUM of about $671.5 million and average daily volume of 83,000 shares. It tracks the MVIS Global Agribusiness Index, which offers exposure to companies, involved in agri-chemicals, animal health and fertilizers, seeds and traits, farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations, and trading of agricultural products. The fund holds 52 securities in its basket and charges 56 bps in annual fees.
Invesco Dynamic Media ETF - All-Time High Price: $40.97
This fund provides exposure to companies engaged in the development, production, sale and distribution of goods or services used in the media industry by tracking the Dynamic Media Intellidex Index. It holds 30 stocks in the basket. The product has been able to manage $40.2 million in its asset base while sees a lower volume of about 4,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #3 with a Medium risk outlook.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>