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4 Market-Beating Sector ETFs of Q3

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The third quarter has been marked by uncertainty and volatility in the stock markets. Concerns over the spread of the Delta variant of COVID-19, Fed’s tapering talks, possibility of  high corporate tax rates, and a slowdown in China made investors jittery.

Additionally, concerns over the financial contagion of the potential failure of China’s Evergrande property group and the ongoing debates about the debt limit in Washington added to the chaos last week. But these worries seemed to ease with the China Evergrande deal on some of its looming debt payments as well as the House passing a bill to avert a government shutdown (read: 4 Sector ETFs Gaining Double Digits Amid September Selling).

On the other hand, a greater vaccination push, an expanded stimulus, and renewed economic growth optimism continued to bolster risk-on trade. All these will continue to power consumer spending and result in robust growth. Americans are spending on big-ticket items such as vacations and weddings. Companies are on a hiring spree, and the transition to new technologies such as electric vehicles is accelerating.

Notably, the first full U.S. approval of the Pfizer PFE-BioNTech COVID-19 vaccine and the approval of emergency use of a booster dose will help put brakes on the ongoing surge in COVID-19 Delta variant cases and lead to continued reopening of the economy.

The U.S. economy returned to the pre-pandemic level in the second quarter, indicating a sustained recovery from the pandemic recession. Resumption of earnings growth also bodes well for the stock market rally. S&P 500 earnings are expected to climb 42.6% on 13.4% higher revenues for 2021. This would follow the respective earnings and revenue decline of 13% and 1.7% reported in 2020.

With just a week of trading session left to end the third quarter, the S&P 500 and Nasdaq Composite index have gained 3.7% and 3.8%, respectively while Dow Jones is up about 0.8%.

While many corners of the equity world witnessed an upside, a few sector ETFs performed incredibly, thereby comfortably crushing the broader markets. Below, we have highlighted four such funds that have been the quarter’s star performers and could also be winners next quarter if the current trends continue.

VanEck Vectors Rare Earth/Strategic Metals ETF (REMX - Free Report) – Up 29.3%

Rare earth metals are getting a boost from an accelerating shift to new technologies such as electric vehicles. About 27% of rare metals are used in the production of neomagnets, which are the essential components in electric vehicles (EVs). REMX offers exposure to companies engaged in producing, refining and recycling of rare earth, and strategic metals and minerals. It follows the MVIS Global Rare Earth/Strategic Metals Index, holding 20 stocks in its basket. The ETF has AUM of $1 billion and an average daily volume of 231,000 shares. From a country look, Chinese firms dominate the portfolio with 47.6% share, closely followed by Australia (25%) and the United States (11.8%). The product charges 59 bps in annual fees.

North Shore Global Uranium Mining ETF (URNM - Free Report) – Up 21%

Uranium stocks have been on a tear buoyed by growing social media attention, restart of nuclear reactors in Japan after 10 years and the growing uranium supply deficit, being accelerated by COVID-19 pandemic related production cuts. This ETF provides exposure to companies that are involved in the mining, exploration, development and production of uranium, as well as companies that hold physical uranium or other non-mining assets. It follows the North Shore Global Uranium Mining Index and charges investors 85 bps in annual fee. The ETF holds 35 stocks in its basket and has accumulated $682.7 million in its asset base. It trades in a good volume of 301,000 shares per day on average (read: 7 Best ETFs of the First Nine Months of 2021).

Global X Lithium & Battery Tech ETF (LIT - Free Report) – Up 14.7%

Lithium prices have been soaring on the back of heavy demand for lithium batteries, which is used in electric vehicles. This product provides global exposure to a broad range of firms engaged in lithium mining, refining, and battery production by tracking the Solactive Global Lithium Index. It holds 37 securities in its basket with the Chinese firms taking the largest share at 50.5%, followed by the United States (22%) and South Korea (8.3%). LIT charges investors 75 bps in annual fees and has amassed $4.7 billion in AUM. It trades in an average daily volume of 925,000 shares.

Simplify Volt Cloud and Cybersecurity Disruption ETF (VCLO - Free Report) – Up 12.3%

The rapid adoption of cloud computing, big data, IoT, virtual reality, AI, machine learning, digital communication, and 5G technology bodes well for this ETF. This thematic investment product is actively managed and designed to concentrate on those few disruptive companies that are poised to dominate the new era of cloud technology and then enhance the concentrated exposure with options. It holds 24 securities in its basket with double-digit allocation to the top two firms. The ETF is a high-cost choice, charging 0.95% in annual fees. It has accumulated $8.6 million in its assets since its inception in late December and trades in an average daily volume of 17,000 shares (read: September Turns Sour: Top ETF Areas of Last Week).