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5 Sector ETFs Beating the Market in Q2

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Wall Street has been enjoying a huge rally this quarter buoyed by a booming technology sector, development of a coronavirus vaccine or treatment, easing of lockdown measures and a massive stimulus program. The latest bout of data suggests that the economy has been recovering slowly from the COVID-19 pandemic.

This is especially true as U.S. retail sales jumped 17.7% in May as American consumers began spending and states gradually reopened their economies while U.S. industrial production rose 1.4% with the resumption of operations in factories after shutdowns spurred by the coronavirus crisis. The United States added 2.5 million jobs in May — the largest monthly gain since the Bureau of Labor Statistics started tracking the data series in 1939. Additionally, homebuilder confidence posted a record jump in June.

Further, the Fed’s latest move to provide liquidity in the markets and the Trump administration’s $1 trillion infrastructure spending package added to the strength. The central bank announced that it would begin purchasing individual corporate bonds as part of its emergency lending program to inject liquidity into the virus-stricken economy (read: Fed's New Stimulus Regains Confidence: 4 ETF Picks).

However, volatility flared up lately with renewed concerns over a second wave of coronavirus infections and Federal Reserve’s dim outlook.

While many corners of the equity world witnessed a solid run, a few sector ETFs performed incredibly, thereby comfortably crushing the broader markets. Below we have highlighted five such sector ETFs that were the second quarter’s star performers and are likely to continue their outperformance if the current trends continue.

InfraCap MLP ETF (AMZA - Free Report) – Up 101.7%

Master Limited Partnerships (MLPs) represent an attractive investment option for income-focused investors as these pay out substantially all of their income to investors on a regular basis. These have relatively consistent and predictable cash flows, making them safer and less risky than the other plays in the broader energy space. In addition to high yields and the potential for capital appreciation, MLPs also have lower volatility and provide diversification benefits to the portfolio. The rise in oil price also bodes well for the sector.

This is an actively managed ETF providing exposure to midstream master limited partnerships (MLPs) with an emphasis on high current income. Holding 44 stocks in its basket, the fund is unpopular and illiquid in the MLP space with AUM of $136.2 million and average daily volume of 114,000 shares. The product has higher expense ratio of 2.41%.

ETFMG Prime Junior Silver ETF (SILJ - Free Report) – Up 68%

Silver has been on a tear driven by optimism over the pickup in industrial demand as the economy reopened. Notably, silver is used in a wide range of industrial applications. About 50% of the metal’s total demand comes from industrial applications, while 30% comes from jewelry/silverware/coins and medal manufacturers. Additionally, the prospect of rising inflation triggered by unprecedented stimulus measures has compelled investors to turn to silver to hedge against near-record-low interest rates. Silver is regarded as a store of wealth and an alternative investment to risky assets during economic and political uncertainty.

SILJ provides direct exposure to the silver mining exploration and production industry by tracking the Prime Junior Silver Miners & Explorers Index. It holds 31 stocks in its basket and Canadian firms take the lion’s share at 62.6%, while the United States, Peru and Brazil take the remainder. The fund has managed assets worth $225.3 million and trades in good volume of nearly 717,000 shares a day. It charges 69 bps in annual fees (read: ETFs Ways to Tap the Rise in Silver Price).

Amplify Online Retail ETF (IBUY - Free Report) – Up 60.9%

With the rapid digital shift in the consumer landscape, online shopping has surged. According to the latest research by Namogoo, most consumers expect to continue and possibly increase their online shopping once the COVID-19 pandemic is over. Per a new SpendingPulse report from Mastercard, U.S. e-commerce sales jumped by 92.7% in May. Consumers spent more than $53 billion via e-commerce in the United States in April and May. IBUY has been the biggest beneficiary of this trend.

This ETF offers global exposure to companies that derive 70% or more revenues from online and virtual retail by tracking the EQM Online Retail Index. The fund comprises 47 stocks and has attracted $426.9 million in its asset base. It charges 65 bps in fees per year and trades in average daily volume of 77,000 shares.

VanEck Vectors Junior Gold Miners ETF (GDXJ - Free Report) – Up 60.5%

Gold has gained strength on investors’ flight to safety triggered by the oil price collapse in April and fears of second wave of coronavirus infection lately. In addition, governments and central banks around the world have pumped trillions of dollars into the financial markets to prop up economies brought to a standstill by the COVID-19 pandemic that is providing a boost to the yellow metal.

GDXJ is a small-cap centric ETF that tracks the MVIS Global Junior Gold Miners Index. Holding 79 stocks in its basket, Canadian firms dominate the fund’s portfolio at 46.2%, while Australia (22.9%) and South Africa (9.9%) round out the top three. The product has AUM of $4.9 billion and charges 53 bps in annual fees. It trades in heavy volume of around 18.7 million shares a day on average.

iShares U.S. Home Construction ETF (ITB - Free Report) – Up 53.8%

The housing industry seems unscathed by the COVID-19 pandemic as demand for homes are surging thanks to lower mortgage rates and home price. With the economy reopening, demand is poised to go even higher, resulting in skyrocketing prices of homebuilders.

This ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 44 stocks with higher concentration on the top three firms and charges 42 bps in annual fees. Homebuilding takes the top spot at 70.3%, followed by 11.8% in building products and 9.4% in home improvement retail. The product has amassed $1.4 billion in its asset base and trades in heavy volume of around 3.4 million shares a day on average. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Sector ETFs & Stocks to Explode as Fed Remains Dovish).

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