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Best Sector ETFs of September

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After taking a beating last month, the Wall Street made a strong comeback in September on easing of trade tensions and another rate cut. The Fed slashed interest rates for the second time since the financial crisis by 25 bps to 1.75-2% in its policy meeting to sustain the decade-long economic expansion.

Lower interest rates make borrowings cheaper, driving investments in new projects and repayment of higher-rate debt. This leads to economic growth and thus spells well for the stock market. Additionally, major central banks across the globe are taking steps to shore up slowing economies that has lifted investors’ confidence (read: 5 Ultra-Cheap Growth ETFs to Tap on Global Stimulus Hopes).

Further, the latest bout of upbeat data pointing to an uptick in inflation, higher consumer and business confidence, high retail sales, strong recovery in the U.S. housing market and solid manufacturing activity underscore the strength of the economy.

That said, a few sector ETFs have outperformed the market. Below we have highlighted five such ETFs that have raked in substantial gains in September and could be better plays if the trend prevails.

Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) — Up 8%

The energy sector has gained momentum on hopes of resumption in U.S.-China trade talks that will ease global slowdown concerns and in turn drive demand for oil. Additionally, a stimulus package from China — the world's second-largest oil consumer and largest importer — and an attack on Saudi Arabia’s oil production facilities, which threatened global supply, have fueled the rally. While most ETFs have been rising this month, PXE emerged a winner. This product follows the Dynamic Energy Exploration & Production Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value.

Holdings 30 stocks in its basket, the fund has amassed $27.9 million in its asset base while trading in average daily volume of 9,000 shares. It charges 63 bps in annual fees and expenses, and has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Saudi Attack Threatens Oil Supply: Energy ETFs Set to Soar).

Invesco S&P SmallCap Materials ETF (PSCM - Free Report) — Up 7.9%

With a rebound in an economic activity, materials sector gets a boost with PSCM stealing the show. This fund targets the materials sector offering exposure to companies that are principally engaged in producing raw materials, including paper or wood products, chemicals, construction materials, and mining and metals. It follows the S&P SmallCap 600 Capped Materials Index, holding 37 securities in its basket. The fund has AUM of $15.7 million and trades in volume of 2,000 shares a day on average. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

First Trust Nasdaq Semiconductor ETF (FTXL - Free Report) — Up 7.2%

Ebbing of trade tensions has fueled a rally in the semiconductor sector of the broad U.S. market given its significant exposure to China. FTXL offers exposure to the 29 most-liquid U.S. semiconductor securities based on volatility, value and growth by tracking the Nasdaq US Smart Semiconductor Index. It has accumulated $26.6 million in AUM and trades in average daily volume of 12,000 shares. It charges 0.60% in expense ratio and has a Zacks ETF Rank #3.

First Trust RBA American Industrial Renaissance ETF (AIRR - Free Report) — Up 7%

This ETF offers exposure to small and mid-cap securities in the industrial and community banking sectors by tracking the Richard Bernstein Advisors American Industrial Renaissance Index. It holds 56 stocks in its basket and charges 70 bps in annual fees. The product has $67.4 million in AUM and trades in lower volume of around 12,000 shares per day on average. It has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: 5 High-Beta ETFs to Buy on Trade Talk Hopes).

Invesco KBW Bank ETF (KBWB - Free Report) — Up 6.6%

With the recovery in economic fundamentals and a second rate cut, yields have moved up of late pushing bank ETFs higher. KBWB provides exposure to the 24 leading national money centers and regional banks or thrifts by tracking the KBW Bank Index. It has managed $565.6 million in its asset base and charges 0.35% in expense ratio. KBWB has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Bank ETFs Benefit From Steepening Yield Curve, But How Long?).

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