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ETFs Buoy on Booming Q2 Corporate Profits: 5 Best Charts

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Corporate profits in America have been soaring this year thanks to the historic tax cuts, improving consumer confidence and an accelerating economy. Per the data from the Commerce Department, the broadest measure of after-tax profits across the United States rose 16.1% (or $47.3 billion) in the second quarter, marking the largest year-over-year gain in six years. However, profits have declined from the $150 billion increase reported in the first quarter.

Taxes paid by U.S. companies were down 33% from the year-ago quarter. The American economy has been growing at the fastest clip in nearly four years. The second estimate of the Bureau of Economic Analysis shows that GDP growth was a bit stronger at 4.2% than 4.1% initially thought of.  

Total earnings per share for companies on the S&P 500 increased 24.8% year over year, marking the second-fastest growth since late 2010, trailing the first quarter. Meanwhile, revenues climbed at the fastest rate since the fall of 2011 at 9.5%.

According to the latest Earnings Trends, the Q2 earnings season for 93.4% of the S&P 500 index market capitalization are up 25.5% on 9.9% revenue growth, with 79.2% beating EPS estimates and 72.8% surpassing top-line expectations. Earnings and revenue growth as well as the proportion of companies beating EPS estimates are tracking above other recent periods. For the quarter as a whole, total Q2 earnings for the index are expected to be up 24.9% on 9.7% higher revenues. This represents the highest quarterly growth pace in almost eight years, exceeding the Q1 earnings growth of 24.6% (read: 5 Sector ETFs to Benefit from Q2 Revenue Growth).

Given this, several equity ETFs impressed with their performances and generated handsome returns in the Q2 earnings season despite trade war worries and geopolitical tensions. While there are winners in many corners of the space, below are five ETFs that buoyed on robust earnings results.

In addition, we have given a chart for their performances since Jul 13 and compared them with the broad market fund SPY and the broad sector.

ETRACS Alerian MLP Index ETN Series B AMUB

Though the energy sector lagged in terms of earnings and revenue surprises, it remains the top contributor to total S&P 500 earnings, with earnings growth of 122.4%. Within the sector, master limited partnerships (MLPs) have outperformed, with most players outpacing the Zacks Consensus Estimate on either the top or bottom line or both. Additionally, the new Federal Energy Regulatory Commission (FERC) ruling related to the treatment of income taxes for interstate natural gas pipeline operators has spread optimism into the space. As such, AMUB, linked to the performance of the Alerian MLP Index, has surged in double-digits in the same time frame (read: MLPs on Rise: Best ETFs & Stocks Over One Month).

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 25 largest retail firms. Total earnings from 85.1% of the sector’s total market capitalization are up 34.9%% on 9.7% higher revenues, with 91.7% of the companies beating on earnings and 75% exceeding top-line estimates. Both growth rates and beat ratios are encouraging, given that these are tracking above historical periods. As a result, RTH has gained 7.1%. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 6 Reasons to Bet on Retail ETFs Now).

SPDR S&P Pharmaceuticals ETF (XPH - Free Report)

This fund provides equal-weighted exposure to 44 pharma companies and has surged 9.1% since Jul 13. Total earnings for 95.9% of the total healthcare market capitalization are up 15.8% on revenue growth of 7.5%, with 90.6% beating EPS and 83% beating revenue estimates. Notably, earnings beat ratio is encouraging. XPH has a Zacks ETF Rank #3 with a High risk outlook (read: Q2 Earnings Drive Pharma ETFs Higher).

Invesco DWA Technology Momentum ETF PTF

This fund provides investors exposure to 43 companies that are showing relative strength (momentum) and is up 7.1% in the same time frame. A slew of strong earnings results from large-capitalization technology and Internet firms such as Alphabet (GOOGL - Free Report) , Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) rekindled investors’ interest in the sector. Any dip from the weak results of Netflix (NFLX - Free Report) , Facebook (FB - Free Report) and Twitter (TWTR - Free Report) led to good buying opportunity. The fund has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook.

U.S. Global Jets ETF (JETS - Free Report)

This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world. Holding 34 stocks in its basket, it has climbed 9.4% in the same time frame. In particular, results from Delta airlines (DAL - Free Report) and United Continental (UAL - Free Report) have been solid, while others like American Airlines (AAL - Free Report) , Southwest Airlines (LUV - Free Report) beat on the earnings estimates but missed on revenues. Overall, the airline industry came up with 67% earnings beat in Q2. However, JETS has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Airlines ETF Gains in 1-Month Period Despite Mixed Results).

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