The Fed finally decided to reduce its monthly bond purchases
by $10 billion and the stock market reacted positively to the
news as the move was made "in the light of improvement in the
economic activity and labor marker conditions".
There is no doubt that the QE has been a major force behind the
market's rally this year but the start of tapering signals that
the economy is now strong enough to withstand the gradual
withdrawal of the QE support. This morning's revision to third
quarter GDP adds to evidence that the economy is on a firmer
A healing labor market, improving housing market, lower energy
prices and still accommodative monetary policy are expected to
act as tailwinds for the market, while fiscal uncertainty
continues to pose some headwinds. (Read:
Obamacare will be amazing for these stocks and
US stocks had an excellent performance during 2013. I expect 2014
to be another good year for stocks though it will probably not be
as spectacular as this year. At current levels, stocks are not
cheap but they are not too expensive either.
Also, corporate earnings will grow as the economy improves
further. Many US companies are sitting on large cash piles, and
are likely to increase capital spending and hiring as economy
4 Best New ETFs of 2013
A gradual rise in interest rates will be good for stocks and bad
for fixed income assets in general. But some sectors will do
better than others. Industrials, technology and insurance are
among the sectors that do well when the economy grows and on the
other hand, interest rate sensitive sectors will be hurt.
Below are three excellent ETFs that will benefit from the
improving growth/ increasing interest rate environment and will
likely be excellent performers in 2014.
Vanguard Information Technology ETF (
The broader Technology sector has been a laggard this year, but
with brightening economic growth, businesses are likely to spend
a lot more on technology products and services going forward.
However, not all industries within the Tech sector will see
improvement in growth. (Read:
3 Apple Focused ETFs to buy this holiday
Per Zacks Earnings Trends, Tech sector's earnings growth started
picking up in Q3, with Software and Semiconductors industries
accounting for most of the growth improvement. IT sector is
expected to report the highest revenue growth for Q4, led by
16.0% increase in revenue growth for Internet Software
&Services Industry, according to FactSet.
Ongoing trends suggest that cloud computing, mobile computing,
data processing and semiconductors segments will likely see
strong growth next year.
VGT is one of the most popular choices in the technology space
with AUM of $4.4 billion and a low expense ratio of 14 basis
points. It holds 428 technology stocks, but about 55% of assets
are invested in top ten holdings. However, the product is well
diversified among the industries with Internet Software&
Services (16%) having the largest exposure. The fund also has a
double digit allocation to fast growing Systems Software and
Apple (AAPL) is the top holding with about 14% of the asset base,
followed by Microsoft and Google.
VGT is a Zacks Rank #1 (Strong Buy) ETF.
SPDR S&P Insurance ETF (
Improving economic picture is positive for all insurers as their
business volume is highly correlated to the health of the
economy. Property & Casualty insurers in particular have seen
a strong top-line growth this year-a trend that continues to gain
Insurers also stand to benefit from the rising rate scenario.
Many insurance companies-life insurance companies in
particular-invest in longer-duration bonds and will earn higher
returns on their investment portfolio as rates go up. Though the
value of long duration bonds in insurers' portfolio goes down as
rates go up, insurers have very long-term investment horizons and
they can hold investments till maturity and no losses are
Insurance industry looks very well poised to outperform in the
coming months from the Zacks M industry rank (10 out of 62 as of
December 20, 2013) perspective too.
KIE follows the S&P Insurance Select Industry
Index, which is an equal weight index. The product charges a
reasonable 35 basis points per year in fees. It currently pays
out a decent dividend of 1.75%.
In terms of holdings, about 39% of the assets are invested in
property and casualty insurance sector, while life & health
account for another 21% of the asset base. Due to the equal
weight methodology, no one security accounts for more than 2.4%
KIE is a Zacks Rank # 2 (Buy) ETF.
PowerShares Dynamic Industrials Sector Portfolio
US manufacturing activity has been quite upbeat of late. With
lower energy prices, improving technology and rising labor costs
in the developing world, the outlook for manufacturing looks
quite positive from longer term perspective as well. (Read:
Play Surging US manufacturing with these ETFs
Industrials sector is expected to have second highest earnings
growth (14.2%) in Q4, with growth predicted to be broad-based
across the sector, per FactSet.
PRN tracks the Dynamic Industrials Sector Intellidex Index, which
evaluates stocks using a proprietary investment methodology
based on 25 factors that measure company fundamentals, stock
valuation, timeliness and risk.
The product has an asset base of $119 million, invested in of 60
industrial companies. It provides exposure to almost all segments
of the industrial sector with double-digit allocation to
Aerospace & Defense, Machinery, Airlines and Commercial
Services & Supplies.
The product is a bit expensive with an expense ratio of 65 basis
points annually but it has been beating the most popular
industrial ETF. It has returned 47% year-to-date compared with
37% for the Industrial SPDR ETF.
PRN is a Zacks Rank # 2 (Buy) ETF.
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SPDR-KBW INSUR (KIE): ETF Research Reports
PWRSH-DYN INDU (PRN): ETF Research Reports
VIPERS-INFO TEC (VGT): ETF Research Reports
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