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5 Favorite Sectors This Earnings Season and Their ETFs
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The third-quarter 2023 earnings season will kick off this week, with the banking sector slated to report numbers. There has been a notable improvement in the earnings outlook in recent months, with positive revisions for several key sectors since the start of Q3 helping to offset continued pressure on estimates for others.
Total S&P 500 earnings are expected to be down 2% from the same period last year on 0.6% lower revenues, per the latest Earnings Trends. This would represent the fourth consecutive quarter of earnings declines and follow declines of 7.1% in the second quarter, 3.4% in the first quarter and 5.4% in the fourth quarter of 2022. Estimates have come down about 0.1% since the start of the period. Six sectors, including the Tech sector, have seen a rise in estimates.
Of the 16 Zacks sectors, eight are expected to post earnings growth in the third quarter, with the strongest gains in the Aerospace (57.2%) sector. This would be followed by Consumer Discretionary (41.1%), Retail (13.1%), Technology (11%) and Utilities (6.3%).
Given this, we have highlighted one ETF from the abovementioned sectors that could make great plays as the earnings season unfolds. These ETFs have a favorable Zacks ETF Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold).
iShares U.S. Aerospace & Defense ETF provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. It holds 33 stocks in its basket with AUM of $5 billion and an expense ratio of 0.40%.
iShares U.S. Aerospace & Defense ETF trades in an average daily volume of around 461,000 shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.
Consumer Discretionary Select Sector SPDR Fund is the largest and most popular product in this space, with AUM of $16.7 billion and an average daily volume of around 4.7 million shares. It offers exposure to the broad consumer discretionary space and tracks the Consumer Discretionary Select Sector Index (read: Top Ranked ETFs That Crushed the Market YTD).
Consumer Discretionary Select Sector SPDR Fund holds 52 securities in its basket, with key holdings in Automobiles, Broadline Retail, Hotels, Restaurants & Leisure, and Specialty Retail with a double-digit allocation each. Consumer Discretionary Select Sector SPDR Fund charges 0.10% in expense ratio and has a Zacks ETF Rank #1 with a Medium risk outlook.
SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 78 stocks in its basket, with none making up for more than 1.7% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in apparel retail, specialty retail, automotive retail, and broadline retail.
SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $408.2 million and an average trading volume of 5.6 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.
Technology: iShares US Technology ETF (IYW - Free Report)
iShares Dow Jones US Technology ETF tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, giving investors exposure to 135 U.S. electronics, computer software and hardware, and informational technology companies. Software & Services takes the largest share at 40.8%, followed by 21.8% for Semiconductors & Semiconductor Equipment, 20.8% for Tech Hardware & Equipment and 15.1% for Media & Entertainment.
iShares Dow Jones US Technology ETF has AUM of $11.2 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges 493,000 shares a day. IYW has a Zacks ETF Rank #1 with a Medium risk outlook (read: 5 Top Technology ETFs YTD With More Upside Potential).
Vanguard Utilities ETF follows the MSCI US Investable Market Utilities 25/50 Index, holding 65 securities in its basket, with none accounting for more than 13.1% share. More than half of the portfolio is allocated to electric utilities, closely followed by multi utilities (26.1%).
Vanguard Utilities ETF charges 10 bps in annual fees and sees a good volume of around 273,000 shares on average. It has AUM of $4.6 billion and a Zacks ETF Rank #3 with a Medium risk outlook.
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5 Favorite Sectors This Earnings Season and Their ETFs
The third-quarter 2023 earnings season will kick off this week, with the banking sector slated to report numbers. There has been a notable improvement in the earnings outlook in recent months, with positive revisions for several key sectors since the start of Q3 helping to offset continued pressure on estimates for others.
Total S&P 500 earnings are expected to be down 2% from the same period last year on 0.6% lower revenues, per the latest Earnings Trends. This would represent the fourth consecutive quarter of earnings declines and follow declines of 7.1% in the second quarter, 3.4% in the first quarter and 5.4% in the fourth quarter of 2022. Estimates have come down about 0.1% since the start of the period. Six sectors, including the Tech sector, have seen a rise in estimates.
Of the 16 Zacks sectors, eight are expected to post earnings growth in the third quarter, with the strongest gains in the Aerospace (57.2%) sector. This would be followed by Consumer Discretionary (41.1%), Retail (13.1%), Technology (11%) and Utilities (6.3%).
Given this, we have highlighted one ETF from the abovementioned sectors that could make great plays as the earnings season unfolds. These ETFs have a favorable Zacks ETF Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold).
Aerospace: iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
iShares U.S. Aerospace & Defense ETF provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. It holds 33 stocks in its basket with AUM of $5 billion and an expense ratio of 0.40%.
iShares U.S. Aerospace & Defense ETF trades in an average daily volume of around 461,000 shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.
Consumer Discretionary: Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
Consumer Discretionary Select Sector SPDR Fund is the largest and most popular product in this space, with AUM of $16.7 billion and an average daily volume of around 4.7 million shares. It offers exposure to the broad consumer discretionary space and tracks the Consumer Discretionary Select Sector Index (read: Top Ranked ETFs That Crushed the Market YTD).
Consumer Discretionary Select Sector SPDR Fund holds 52 securities in its basket, with key holdings in Automobiles, Broadline Retail, Hotels, Restaurants & Leisure, and Specialty Retail with a double-digit allocation each. Consumer Discretionary Select Sector SPDR Fund charges 0.10% in expense ratio and has a Zacks ETF Rank #1 with a Medium risk outlook.
Retail: SPDR S&P Retail ETF (XRT - Free Report)
SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 78 stocks in its basket, with none making up for more than 1.7% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in apparel retail, specialty retail, automotive retail, and broadline retail.
SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $408.2 million and an average trading volume of 5.6 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.
Technology: iShares US Technology ETF (IYW - Free Report)
iShares Dow Jones US Technology ETF tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, giving investors exposure to 135 U.S. electronics, computer software and hardware, and informational technology companies. Software & Services takes the largest share at 40.8%, followed by 21.8% for Semiconductors & Semiconductor Equipment, 20.8% for Tech Hardware & Equipment and 15.1% for Media & Entertainment.
iShares Dow Jones US Technology ETF has AUM of $11.2 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges 493,000 shares a day. IYW has a Zacks ETF Rank #1 with a Medium risk outlook (read: 5 Top Technology ETFs YTD With More Upside Potential).
Utilities: Vanguard Utilities ETF (VPU - Free Report)
Vanguard Utilities ETF follows the MSCI US Investable Market Utilities 25/50 Index, holding 65 securities in its basket, with none accounting for more than 13.1% share. More than half of the portfolio is allocated to electric utilities, closely followed by multi utilities (26.1%).
Vanguard Utilities ETF charges 10 bps in annual fees and sees a good volume of around 273,000 shares on average. It has AUM of $4.6 billion and a Zacks ETF Rank #3 with a Medium risk outlook.