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4 Market-Beating Sector ETFs of the Third Quarter

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Wall Street saw huge volatility in the third quarter triggered by U.S.-China trade conflicts, low inflation, collapse in bond yields and geopolitical tensions. After hitting all-time highs in July, the U.S. stock was beaten down badly in August and then rebounded in September. Notably, the Dow and the S&P 500 gained more than 1% each in the third quarter, marking the third straight quarterly gain for both indices, while the Nasdaq dipped 0.1%.

The recent rally was driven by easing of trade tensions and Fed’s rate cut. Notably, 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 bodes well for the stock market. Additionally, major central banks across the globe are also taking steps to shore up slowing economies and have in turn lifted investors’ confidence.

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 (read: Large Cap ETFs Hit All-Time High).

While many corners of the equity world witnessed a solid run, a few sector ETFs performed incredibly well, thereby comfortably crushing the broader markets. Below we have highlighted four such funds that were the third quarter’s star performers and could also be winners in the ongoing quarter if the current trends continue.

ETFMG Prime Junior Silver ETF (SILJ - Free Report) – Up 15.2%

The risk-off trade environment has driven silver prices higher as the white metal is regarded as a store of wealth and an alternative investment to risky assets during economic and political uncertainty. Though demand for silver has weakened due to slowdown in industrial activity in major economies, ongoing growth in the global solar PV industry, rebound in global computer shipments as well as new sources of demand for sensors used in IoT and OLED lighting are providing a boost to the requirement for silver (read: Top-Performing Stocks of the Best ETF of Q3).

SILJ provides direct exposure to the silver mining exploration and production industry by tracking the Prime Junior Silver Miners & Explorers Index. It holds 32 stocks in its basket with higher concentration on the top four firms. Canadian firms take the lion’s share at 67.9% while the United States and Peru take the remainder. The fund has managed assets worth $105.9 million and trades in a good volume of about 273,000 shares a day. It charges 69 bps in annual fees.

U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU - Free Report) : Up 12.5%

The market turmoil compelled investors to flock to gold as a great store of value and hedge against market turmoil. GOAU provides investors with access to companies engaged in the production of precious metals either through active (mining or production) or passive (owning royalties or production streams) means. It tracks the U.S. Global Go Gold and Precious Metal Miners Index, holding 29 stocks in its basket. Canada takes the lion’s share at 56.8%, followed by South Africa (17.8%) and the United States (12.9%). It has amassed $34.1 million in its asset base and charges 60 bps in fees per year. Volume is light at nearly 37,000 shares.

iShares U.S. Home Construction ETF (ITB - Free Report) – Up 11.7%

The U.S. housing market has been on a tear attributable to a decline in mortgage rates and slower home price growth. Notably, U.S. home construction soared to more than a 12-year high in August while U.S. housing starts jumped to the highest level since June 2007. ITB provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $1.2 billion, it holds a basket of 45 stocks with double-digit concentration on the top two firms. The product charges 42 bps in annual fees and trades in heavy volume of around 2.1 million shares a day on average. It has gained 43.6% so far this year and has a Zacks ETF Rank #3 with a High risk outlook (read: Top-Performing ETFs of the First Nine Months of 2019).

Utilities Select Sector SPDR (XLU - Free Report) – Up 9.3%

Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or a safe haven amid economic or political turmoil. With AUM of $11.4 billion, this fund provides exposure to a small basket of 28 securities by tracking the Utilities Select Sector Index. It is heavily concentrated on the top firm with 12.7% share while other firms hold no more than 8% of assets. Electric utilities take the top spot in terms of sectors at 61.2%, closely followed by multi utilities (32.4%). The product charges 13 bps in annual fees and sees heavy volume of around 17.2 million shares on average (read: Sector ETFs, Stocks Set to Explode After Another Rate Cut).

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