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Earnings have been rebounding from the pandemic lows given signs of a sharp rebound in economic growth. This is especially true as Q1 results from 30.6% of the S&P 500 members that have reported are up 46% on 5.9% higher revenues, with 84.3% beating EPS estimates and 75.2% beating revenue estimates. This is a notably better performance relative to the group companies seen in other recent periods.
Looking at Q1 as a whole, combining the actual results that have come up with estimates for the still-to-come companies, total earnings are on track to increase 31% on 6.8% revenue growth. This reflects a solid improvement from the 12.6% growth expected at the start of Q1 and follows the 3.1% earnings growth in Q4. Investors should note that Q1 earnings are on track to reach a new quarterly record at $381.6 billion, surpassing the previous record of $373.7 billion set in Q4 2020.
Of the 16 Zacks sectors, 10 are likely to post earnings growth. Among these, autos is expected to be the biggest contributor to the S&P 500 earnings with 204.9% growth. This may be followed by finance (90.8% earnings growth), basic materials (64.9%) and retail (42.9%) (read: Favorite Sectors of Q1 Earnings & Their Best ETFs, Stocks).
According to Refinitiv’s data, results from 110 of the S&P 500 companies as of Apr 22, indicated that 85.5% have beaten analysts’ estimates for earnings per share. If the trend continues through the reporting season, it would be the highest beat rate on record, dating back to 1994. Refinitiv’s data revealed total earnings growth of 33.3% in the first quarter compared with 24.2% at the start of the month. This would be the highest quarterly profit growth since 2010 following the financial crisis.
Per Factset, about 25% of the companies in the S&P 500 reported results as of Apr 22 and 84% of S&P 500 companies came up with an earnings surprise while 77% reported a revenue surprise. If 84% is the final percentage, it will tie the mark for the highest percentage of S&P 500 companies reporting an earnings surprise since FactSet began tracking this metric in 2008. Overall, Q1 earnings are estimated to grow 33.8%, marking the highest year-over-year earnings growth since Q3 2010.
Earnings strength is broad-based with small caps projected to report much better. For the small-cap S&P 600 Index, total earnings from the 32 (or 5.3%) index members are up 38.8% on 3.9% lower revenues, with 78.1% beating EPS estimates and 71.9% beating revenue estimates. Looking at Q1 as a whole for the small-cap index, total earnings are expected to soar 195.7% from the same period last year on 5.2% higher revenues. This would follow 0.3% earnings growth on a 0.7% revenue decline in Q4.
Given the strong earnings momentum, many investors want to capitalize on this opportune moment with earnings-focused ETFs.
Why Earnings-Focused ETFs?
Earnings have been the most important drivers of stock performance over a longer period. This is because earnings are the lifeblood of any business, determining its ability and soundness along with its growth prospects. Earnings-producing companies generally catch investors’ eye due to their solid financial position and growth potential, thereby leading to higher stock prices (read: Big Tech Earnings Wave to Push Nasdaq ETFs Higher).
Thus, earnings-weighted ETFs have the potential to move higher relative to any other product in the earnings growth period. As a result, tilting toward this key metric is a sensible choice at present. For investors seeking to do this, there is a small lineup of U.S. focused ETFs that accomplishes this task.
Below we have highlighted the funds that could be great choices for investors seeking to make money focusing on one of the most important aspects of stock investing.
This fund provides exposure to earnings-generating companies within the large-cap segment of the broad U.S. stock market by tracking the WisdomTree U.S. LargeCap Index. Holding 500 stocks in its basket, the fund is well spread out across each component as each accounts for less than 5% share. Additionally, the product has diverse exposure to a number of sectors with information technology, financials, healthcare and consumer services taking double-digit exposure each. The ETF has amassed $555.8 million in its asset base and charges 8 bps in annual fees. Volume is light, trading around 36,000 shares a day. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
This ETF tracks the WisdomTree U.S. MidCap Index, providing exposure to the 465 earnings-generating mid-cap companies. The fund is widely spread out across components as each make up for less than 1% of assets. From a sector look, financials takes the top spot with 23.1% share followed by industrials (20%), consumer discretionary (15.3%) and information technology (9.8%). The fund charges 38 bps in fees per year while trades in an average daily volume of nearly 43,000 shares. It has accumulated $743.8 million in AUM and has a Zacks ETF Rank #3 with a Medium risk outlook.
This fund targets earnings-generating small-cap companies by tracking the WisdomTree U.S. SmallCap Index. Holdings 697 stocks in its basket, the ETF provides a nice balance across various securities as each firm holds less than 1.1% share in the basket. Financials, industrials, and consumer discretionary are the top sectors with double-digit exposure each. The product has amassed $638.6 million in its asset base and sees moderate volume of around 90,000 shares per day. It charges 38 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: A Spread of Small-Cap ETFs Touching New Heights).
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ETFs to Play the Strong Q1 Earnings Trend
Earnings have been rebounding from the pandemic lows given signs of a sharp rebound in economic growth. This is especially true as Q1 results from 30.6% of the S&P 500 members that have reported are up 46% on 5.9% higher revenues, with 84.3% beating EPS estimates and 75.2% beating revenue estimates. This is a notably better performance relative to the group companies seen in other recent periods.
Looking at Q1 as a whole, combining the actual results that have come up with estimates for the still-to-come companies, total earnings are on track to increase 31% on 6.8% revenue growth. This reflects a solid improvement from the 12.6% growth expected at the start of Q1 and follows the 3.1% earnings growth in Q4. Investors should note that Q1 earnings are on track to reach a new quarterly record at $381.6 billion, surpassing the previous record of $373.7 billion set in Q4 2020.
Of the 16 Zacks sectors, 10 are likely to post earnings growth. Among these, autos is expected to be the biggest contributor to the S&P 500 earnings with 204.9% growth. This may be followed by finance (90.8% earnings growth), basic materials (64.9%) and retail (42.9%) (read: Favorite Sectors of Q1 Earnings & Their Best ETFs, Stocks).
According to Refinitiv’s data, results from 110 of the S&P 500 companies as of Apr 22, indicated that 85.5% have beaten analysts’ estimates for earnings per share. If the trend continues through the reporting season, it would be the highest beat rate on record, dating back to 1994. Refinitiv’s data revealed total earnings growth of 33.3% in the first quarter compared with 24.2% at the start of the month. This would be the highest quarterly profit growth since 2010 following the financial crisis.
Per Factset, about 25% of the companies in the S&P 500 reported results as of Apr 22 and 84% of S&P 500 companies came up with an earnings surprise while 77% reported a revenue surprise. If 84% is the final percentage, it will tie the mark for the highest percentage of S&P 500 companies reporting an earnings surprise since FactSet began tracking this metric in 2008. Overall, Q1 earnings are estimated to grow 33.8%, marking the highest year-over-year earnings growth since Q3 2010.
Earnings strength is broad-based with small caps projected to report much better. For the small-cap S&P 600 Index, total earnings from the 32 (or 5.3%) index members are up 38.8% on 3.9% lower revenues, with 78.1% beating EPS estimates and 71.9% beating revenue estimates. Looking at Q1 as a whole for the small-cap index, total earnings are expected to soar 195.7% from the same period last year on 5.2% higher revenues. This would follow 0.3% earnings growth on a 0.7% revenue decline in Q4.
Given the strong earnings momentum, many investors want to capitalize on this opportune moment with earnings-focused ETFs.
Why Earnings-Focused ETFs?
Earnings have been the most important drivers of stock performance over a longer period. This is because earnings are the lifeblood of any business, determining its ability and soundness along with its growth prospects. Earnings-producing companies generally catch investors’ eye due to their solid financial position and growth potential, thereby leading to higher stock prices (read: Big Tech Earnings Wave to Push Nasdaq ETFs Higher).
Thus, earnings-weighted ETFs have the potential to move higher relative to any other product in the earnings growth period. As a result, tilting toward this key metric is a sensible choice at present. For investors seeking to do this, there is a small lineup of U.S. focused ETFs that accomplishes this task.
Below we have highlighted the funds that could be great choices for investors seeking to make money focusing on one of the most important aspects of stock investing.
WisdomTree Earnings 500 Fund (EPS - Free Report)
This fund provides exposure to earnings-generating companies within the large-cap segment of the broad U.S. stock market by tracking the WisdomTree U.S. LargeCap Index. Holding 500 stocks in its basket, the fund is well spread out across each component as each accounts for less than 5% share. Additionally, the product has diverse exposure to a number of sectors with information technology, financials, healthcare and consumer services taking double-digit exposure each. The ETF has amassed $555.8 million in its asset base and charges 8 bps in annual fees. Volume is light, trading around 36,000 shares a day. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
WisdomTree MidCap Earnings ETF (EZM - Free Report)
This ETF tracks the WisdomTree U.S. MidCap Index, providing exposure to the 465 earnings-generating mid-cap companies. The fund is widely spread out across components as each make up for less than 1% of assets. From a sector look, financials takes the top spot with 23.1% share followed by industrials (20%), consumer discretionary (15.3%) and information technology (9.8%). The fund charges 38 bps in fees per year while trades in an average daily volume of nearly 43,000 shares. It has accumulated $743.8 million in AUM and has a Zacks ETF Rank #3 with a Medium risk outlook.
WisdomTree SmallCap Earnings ETF (EES - Free Report)
This fund targets earnings-generating small-cap companies by tracking the WisdomTree U.S. SmallCap Index. Holdings 697 stocks in its basket, the ETF provides a nice balance across various securities as each firm holds less than 1.1% share in the basket. Financials, industrials, and consumer discretionary are the top sectors with double-digit exposure each. The product has amassed $638.6 million in its asset base and sees moderate volume of around 90,000 shares per day. It charges 38 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: A Spread of Small-Cap ETFs Touching New Heights).
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 >>