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4 ETFs Set to Gain on Dismal May Job Data

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U.S. job data for the month of May has disappointed investors but could not shake the bullishness and confidence in the market. This is especially true as the Wall Street hit another record high following the data while the dollar index, which tracks the greenback against a basket of six major peers, fell to a seven-month low.

The economy added 138,000 jobs in May, falling short of analysts’ expectation of 185,000 as surveyed by Reuters and 180,000 as surveyed by Bloomberg. Additionally, both March and April job gains were revised down by 66,000. As per economists, the numbers are not bad as slower job growth signals that the labor market is nearing full capacity. The economy needs to create 75,000–100,000 jobs per month to keep up with growth in the working-age population.

Notably, May job gains were well above this mark and enough for the Fed to raise interest rates at its June 13–14 meeting as expected (read: Fed to Tighten Policy: Bet on These ETFs).  

Most of the job gains came from education and health services, which saw 47% rise in hiring, followed by increases of 38% in professional and business services, 31% in leisure and hospitality and 11% in construction.

Meanwhile, the unemployment rate dropped to 4.3%, the lowest level since 2001, and average hourly earnings rose 0.2% bringing year-over-year wage growth to 2.5%, much better than the previous years. Given this, the overall labor market is the healthiest in more than a decade.

Against such a backdrop, several ETFs are expected to gain in the weeks ahead. Below, we have highlighted some of these:

ETFs Winners

SPDR Gold Trust ETF (GLD - Free Report)

Gold jumped to the highest close since April following the weak jobs report, extending the gains for the fourth consecutive week. The downbeat jobs report cast a pall on rate increases this year after the expected June rate hike, which was already discounted in the gold price.

As a result, product tracking this bullion like GLD will gain. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $34.5 billion and average daily volume of around 7.8 million shares a day. Expense ratio came in at 0.40%. The fund gained 0.7% on Friday and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: 5 Reasons Why Gold ETFs May be Up for a Rebound).

iShares 20+ Year Treasury Bond ETF (TLT - Free Report)

The U.S. Treasuries jumped on the news, pushing the yields lower. Although all the categories have held up higher on the session, long-term Treasury bond ETFs benefited the most from the weak job data. In particular, TLT, which tracks the ICE U.S. Treasury 20+ Year Bond Index, surged 1.2% on the day.

Holding 33 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 26.22 years and effective duration of 17.58 years. The ETF is one of the most popular and liquid ETFs in the bond space with AUM of $7.1 billion and average daily volume of more than 9 million shares. It charges 15 bps in fees per year and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook (read: Trump's First 100 Days: 5 Must See ETF Charts).

iShares MSCI Emerging Markets ETF (EEM - Free Report)

Emerging market stocks will get a boost as weaker-than-expected job data reaffirmed the hope of dovish rate hike path, which would infuse more capital into these nations. The ultra-popular ETF – EEM - targeting the emerging markets added 0.5%. It tracks the MSCI Emerging Markets Index and holds 855 securities with each holding less than 4.3% of assets. However, the product is tilted toward the information technology and financial sectors at 24.5% and 23.5%, respectively, while the other sectors make up for a nice mix in the portfolio.

Among the emerging countries, China takes the top spot at 26.7% while South Korea and Taiwan round off the next two spots with double-digit exposure each. The fund has AUM of $31.6 billion and average daily volume of about 52.5 million shares. It charges 72 bps in annual fees and has a Zacks ETF Rank of 3 with a Medium risk outlook.

SPDR S&P Health Care Services ETF (XHS - Free Report)

Healthcare added 24,000 jobs in May making XHS an attractive pick. The fund uses an equal weight methodology to each security by tracking the S&P Health Care Services Select Industry Index. Holding 55 stocks in its basket, each security accounts for no more than 3.16% of total assets. From an industry look, health care services, health care facilities, and managed health care collectively make up for 84.6% share while health care distributors take the remainder. The fund has amassed $110.8 million in its asset base and trades in a light volume of around 17,000 shares a day. Expense ratio comes in at 0.35%. The ETF has added about 0.2% on the day and has a Zacks ETF Rank of 3 with a Medium risk outlook.

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