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Fund Managers Bullish on America in June: 6 ETFs to Profit
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Per a Bank of America Merrill Lynch survey, global fund managers are the most bullish on American stocks in June for the first time in 15 months driven by a solid profit outlook. About 64% of the managers said that the United States has the best profit outlook in 17 years.
The rounds of upbeat economic data, which indicate robust growth after the first-quarter slowdown, have compelled global managers to pour money into domestic equities. American manufacturing is enjoying a 21-month winning streak, average hourly wages have been rising with 2.7% year-over-year growth, and unemployment has dropped to 3.8%, which is the lowest level since 2000. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose the most in five months by 0.6% in April, while consumer confidence rebounded near the 18-year high in May (read: 4 Solid Reasons to Buy Mega-Cap ETFs Now).
Part of the optimism can also be traced back to a decline in sentiment surrounding other regions. Higher allocation to equities is coming at the expense of Eurozone and emerging markets equities. This is primarily due to ongoing trade disputes as well as rising corporate debt in Eurozone and the emerging markets that would thwart global growth and derail the stock markets. Additionally, Fed rate hikes are also dampening the appeal for the emerging market equities.
Among the sectors, technology, banks and energy are the most popular while consumer staples, utilities and telecom have fallen out of favor. In fact, FAANG and BAT remain the most crowded trade for the fifth month per the survey. FAANG is a cluster of Facebook , Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Netflix (NFLX - Free Report) and Google-parent Alphabet (GOOGL - Free Report) while BAT is an acronym for Baidu (BIDU - Free Report) , Alibaba (BABA - Free Report) and Tencent (TCEHY - Free Report) . For the first time since the sell-off in February, technology has overtaken banks as the bigger overweight.
Shorting U.S. Treasury bonds and buying the U.S. dollar are the other two "most crowded" trades. Meanwhile, commodities have also become popular with the allocation reaching an eight-year high thanks to a surge in oil price.
Given this, we have highlighted six ETFs that could outperform the market in the coming weeks defying the political gyrations.
This is one of the most popular and liquid ETFs in the broad technology space, with AUM of $9 billion and average daily volume of around 574,000 shares, which offers exposure to the FAANG stocks. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio comes in at 0.53%. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook and has climbed 6.2% mid-month in June (read: A Spread of ETFs to Mimic Hedge Fund Ideas).
This fund targets the technology sector in China and follows the AlphaShares China Technology Index. Holding 75 stocks, Alibaba, Tencent and Bidu are the top three holdings accounting for more than one-fourth of the portfolio. The product manages an asset base of $467.7 million while trades in a good volume of around 148,000 shares a day. Expense ratio comes in at 0.70%. CQQQ has gained 4.5% so far this month and carries a Zacks ETF Rank #2 with a High risk outlook.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN FNGU
This product is suitable for risk-aggressive investors and seeks to offer three times leveraged exposure to the NYSE FANG Index, which is an equal-dollar weighted index targeting the highly-traded growth stocks of next generation technology and tech-enabled companies in the technology and consumer discretionary sectors. This includes the five FAANG stocks plus another five actively traded technology growth stocks, namely Alibaba, Baidu, NVIDIA, Tesla and Twitter. The ETN debuted in late January and has accumulated $94.7 million since then. It charges 95 bps in annual fees and trades in average daily volume of 97,000 shares. The product has climbed 35.4% halfway through June (read: 5 Best Leveraged ETFs to Start June).
This fund, having AUM of $5.3 billion and average trading volume of around 6.2 million, offers exposure to the regional banks. It follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. Holding 120 securities in its basket, the fund is widely spread out with each security holding less than 2.3% of assets. The fund has risen 1.4% so far this month and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook.
This ETF will benefit the most from investors’ love for American stocks as small caps are closely tied to the U.S. economy and do not have much exposure to the international market. The product provides exposure to a broad basket of 1,967 stocks by tracking the Russell 2000 Index, with none holding more than 0.60% of assets. IWM is the most popular and liquid choice in the small-cap space, with AUM of $47.5 billion and average trading volumes of around 22.3 million shares. It charges 20 bps in annual fees and has added 3.1% so far this month. The product has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 7 Exciting ETFs Ways to Profit From Ongoing Trade Spat).
PowerShares DB US Dollar Bullish Fund (UUP - Free Report)
UUP is the prime beneficiary of a rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, UUP allocates nearly 57.6% in euro and 25.5% collectively in the Japanese yen and British pound. The fund has so far managed an asset base of $582.8 million while sees an average daily volume of around 1.2 million shares. It charges 79 bps in annual fees and has added nearly 1% halfway through June. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook
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Fund Managers Bullish on America in June: 6 ETFs to Profit
Per a Bank of America Merrill Lynch survey, global fund managers are the most bullish on American stocks in June for the first time in 15 months driven by a solid profit outlook. About 64% of the managers said that the United States has the best profit outlook in 17 years.
The rounds of upbeat economic data, which indicate robust growth after the first-quarter slowdown, have compelled global managers to pour money into domestic equities. American manufacturing is enjoying a 21-month winning streak, average hourly wages have been rising with 2.7% year-over-year growth, and unemployment has dropped to 3.8%, which is the lowest level since 2000. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose the most in five months by 0.6% in April, while consumer confidence rebounded near the 18-year high in May (read: 4 Solid Reasons to Buy Mega-Cap ETFs Now).
Part of the optimism can also be traced back to a decline in sentiment surrounding other regions. Higher allocation to equities is coming at the expense of Eurozone and emerging markets equities. This is primarily due to ongoing trade disputes as well as rising corporate debt in Eurozone and the emerging markets that would thwart global growth and derail the stock markets. Additionally, Fed rate hikes are also dampening the appeal for the emerging market equities.
Among the sectors, technology, banks and energy are the most popular while consumer staples, utilities and telecom have fallen out of favor. In fact, FAANG and BAT remain the most crowded trade for the fifth month per the survey. FAANG is a cluster of Facebook , Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Netflix (NFLX - Free Report) and Google-parent Alphabet (GOOGL - Free Report) while BAT is an acronym for Baidu (BIDU - Free Report) , Alibaba (BABA - Free Report) and Tencent (TCEHY - Free Report) . For the first time since the sell-off in February, technology has overtaken banks as the bigger overweight.
Shorting U.S. Treasury bonds and buying the U.S. dollar are the other two "most crowded" trades. Meanwhile, commodities have also become popular with the allocation reaching an eight-year high thanks to a surge in oil price.
Given this, we have highlighted six ETFs that could outperform the market in the coming weeks defying the political gyrations.
First Trust Dow Jones Internet Index Fund FDN
This is one of the most popular and liquid ETFs in the broad technology space, with AUM of $9 billion and average daily volume of around 574,000 shares, which offers exposure to the FAANG stocks. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio comes in at 0.53%. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook and has climbed 6.2% mid-month in June (read: A Spread of ETFs to Mimic Hedge Fund Ideas).
Invesco China Technology ETF (CQQQ - Free Report)
This fund targets the technology sector in China and follows the AlphaShares China Technology Index. Holding 75 stocks, Alibaba, Tencent and Bidu are the top three holdings accounting for more than one-fourth of the portfolio. The product manages an asset base of $467.7 million while trades in a good volume of around 148,000 shares a day. Expense ratio comes in at 0.70%. CQQQ has gained 4.5% so far this month and carries a Zacks ETF Rank #2 with a High risk outlook.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN FNGU
This product is suitable for risk-aggressive investors and seeks to offer three times leveraged exposure to the NYSE FANG Index, which is an equal-dollar weighted index targeting the highly-traded growth stocks of next generation technology and tech-enabled companies in the technology and consumer discretionary sectors. This includes the five FAANG stocks plus another five actively traded technology growth stocks, namely Alibaba, Baidu, NVIDIA, Tesla and Twitter. The ETN debuted in late January and has accumulated $94.7 million since then. It charges 95 bps in annual fees and trades in average daily volume of 97,000 shares. The product has climbed 35.4% halfway through June (read: 5 Best Leveraged ETFs to Start June).
SPDR S&P Regional Banking ETF (KRE - Free Report)
This fund, having AUM of $5.3 billion and average trading volume of around 6.2 million, offers exposure to the regional banks. It follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. Holding 120 securities in its basket, the fund is widely spread out with each security holding less than 2.3% of assets. The fund has risen 1.4% so far this month and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook.
iShares Russell 2000 (IWM - Free Report)
This ETF will benefit the most from investors’ love for American stocks as small caps are closely tied to the U.S. economy and do not have much exposure to the international market. The product provides exposure to a broad basket of 1,967 stocks by tracking the Russell 2000 Index, with none holding more than 0.60% of assets. IWM is the most popular and liquid choice in the small-cap space, with AUM of $47.5 billion and average trading volumes of around 22.3 million shares. It charges 20 bps in annual fees and has added 3.1% so far this month. The product has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 7 Exciting ETFs Ways to Profit From Ongoing Trade Spat).
PowerShares DB US Dollar Bullish Fund (UUP - Free Report)
UUP is the prime beneficiary of a rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, UUP allocates nearly 57.6% in euro and 25.5% collectively in the Japanese yen and British pound. The fund has so far managed an asset base of $582.8 million while sees an average daily volume of around 1.2 million shares. It charges 79 bps in annual fees and has added nearly 1% halfway through June. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>