The tax reform, rounds of solid data, higher oil prices and strong corporate earnings have boosted Americans’ confidence in their economy. Yet the U.S. stock market is caught in a bull-bear tug-of-war this year. This is especially true as the Dow Jones logged in the worst first-half performance since 2010, losing 2% while the S&P 500 has gained 1.7%.
A marked decline came on the heels of a series of woes including growing inflationary threats, surge in yields, tech selloff, and of course the biggest culprit — tariff tantrums. The tension between the United States and some of its major trading partners has shaken the market in the past four months and is likely to do so going in the second half. This is because the tit-for-tat tariff situation has turned hostile and chances of a full-blown trade war, with the world’s largest countries announcing tariffs on billions of dollars’ worth of imports, are likely to take effect on Jul 6 (read: Best & Worst Zones of 1H 2018 and Their ETFs).
Additionally, the Trump administration imposed tariffs on steel and aluminum imported from the European Union, Canada and Mexico in June, and each region retaliated with their own tariffs on American goods.
Even in such a tensed backdrop, some specific zones like technology and small caps outperformed. The healthcare sector too is holding on the increased wave of mergers & acquisitions and its defensive nature. In fact, the tech-heavy Nasdaq Composite and the small-cap Russell 2000 Index have returned respectively more than 9% and 7% in the first six months of 2018.
The Nasdaq has been blessed thanks to surging FANG stocks and other big tech titans. The dual tailwinds of a rising rate scenario and the new tax repatriation policy are fueling growth in the tech sector. The emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, and artificial intelligence (AI) as well as strong corporate earnings are also the key catalysts.
On the other hand, small caps ensure higher returns when the American economy is arguably leading the way. These pint-sized stocks are closely tied to the U.S. economy and generate most of their revenues from the domestic market, making them safer bets than their large and mid-cap counterparts during a global turmoil. Due to their less international exposure, these stocks remained relatively unscathed by the strong dollar and trade war fears (read: 6 Small-Cap ETFs That Have Surged to #1 Rank in Summer).
Given this, we have highlighted five star-spangled ETFs from both these areas with handsome returns of more than 20% in the year-to-date time frame. These funds focus exclusively on American equities and could definitely be worth a look for investors seeking a domestic tilt to their portfolio following the Fourth of July Holiday:
Invesco S&P SmallCap Health Care ETF (PSCH - Free Report) - This fund provides exposure to the health care sector of the U.S. small-cap segment. It has surged nearly 32% so far this year and sports a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: 5 Top Performing Stocks of the Best ETF of 1H2018).
SPDR S&P Internet ETF (XWEB - Free Report) – This product targets the Internet corner of the broad tech space. It is focused on small-cap stocks with 63% while mid and large caps account for 23% and 13%, respectively. The fund has climbed 30.5% in the same time period and carries a Zacks ETF Rank #3 (Hold).
SPDR FactSet Innovative Technology ETF (XITK - Free Report) - This fund seeks to provide exposure to the most innovative companies with high revenue growth across the technology sector and other industries that deal with technology, such as electronic media. It has a concentrated exposure to small caps at 45%. Mid caps take 36% share while large caps take the remainder. XITK is up 23.8% so far this year.
Invesco DWA Healthcare Momentum ETF (PTH - Free Report) – This ETF seeks exposure to healthcare stocks based on relative strength. It is also tilted toward the small-cap securities, which make up half of the portfolio. The fund gained has 23% this year and has a Zacks ETF Rank #3 with a High risk outlook (read: Fed, Trade & Global Politics to Rule June: 6 ETF Picks).
Invesco Dynamic Software ETF (PSJ - Free Report) - This product targets the software corner of the broad technology space. Small and mid caps make up for 36% and 35% share, respectively, while large caps account for 29% of the portfolio. PSJ gained 21.6% in the year-to-date timeframe and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.
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