Better-than-expected jobs report for February has raised hopes
that the economy is beginning to thaw. Most analysts now believe
that weak economic data for the past couple of months was mainly
the result of unusually cold weather conditions. If they are
correct, the economy might pick up momentum as the spring
Improving economy is one of the main reasons to believe that the
five year old bull market still has legs. Further, even though
the Fed may continue with gradual withdrawal of its QE program,
the monetary policy is still very accommodative. With earnings
near all-time high, US companies have been returning record
amounts of cash to investors via dividends and buybacks. (Read:
Best ETF Strategies for 2014
Fourth quarter earnings have been a mixed bag, but at the same
time, investors are clearly rewarding stocks and sectors that
have been witnessing positive earnings momentum. One easy way to
identify sectors with improving earnings prospects is to look at
Zacks Industry ranks, which are based on earnings estimates
And a good way to invest in these sectors is to look at ETFs that
have earned top Zacks ranks, based on their potential to
outperform their peers. (Read:
Are Oil exploration ETFs ready to break out?
Financial Select Sector SPDR Fund (
Financial sector's performance has been in-line with the market
this year. Mixed earnings and flattening yield curve weighed on
But long term rates may start creeping up with improving economy.
Further housing market may pick up momentum after spring. Those
developments will be positive for banks.
The Fed is set to release the "stress test" results for 30 large
banks later this month. It is widely expected that many of these
banks will get their capital plans approved and will be able to
increase dividends and buybacks.
Looking at industries within the broader financial sector,
insurance (ranked #3 out of 62 M industries), investment managers
(#6) and banks & thrifts (#7) are witnessing strong positive
estimates revisions in the past few weeks, resulting in their top
industry ranks as of now.
XLF is the largest and most popular ETFs in the financials space.
This product has $18.5 billion in assets under management and
trades in heavy volume of more than 40 million shares a day.
The ETF charges 16 bps in fees per year from investors and is the
second cheapest choice among financial ETFs. The product
currently holds about 83 securities in its basket-with Wells
Fargo, JP Morgan Chase and Berkshire Hathaway being the top
In terms of industry exposure, the product has highest exposure
to banks at 38% while insurance, capital markets, REITs and
diversified financial services also account for double-digit
Mid-cap ETFs leading the broad rally
The ETF has a Zacks ETF Rank of 1 or 'Strong Buy'.
SPDR S&P Aerospace & Defense ETF
Despite budget related worries, this small sector has been doing
very well for the past many months, thanks mainly due to strong
momentum in the commercial aviation market. "Aerospace &
Defense" is currently #5 (out of 62) on the Zacks M industry
Fourth quarter earnings were excellent for the Aerospace sector
with an 88.9% earnings beat ratio, 88.9% revenue beat ratio and
20.0% earnings growth.
Launched in September 2011, this product tracks S&P Aerospace
and Defense Select Industry index, which is a modified equal
This product has attracted AUM of $52.6 million so far. It holds
36 securities with weighted average market cap of $21.7 billion.
It charges 35 basis points in expenses and has a decent dividend
yield of 1.2% currently.
Being modified equal weighted, the fund is pretty well
diversified with the top holding accounting for just 4.6% of
total assets. It has returned almost 60% in the past one year.
XAR is a Zacks Rank #1 (Strong Buy) ETF.
First Trust NASDAQ Clean Energy Green Energy
Alternative energy is one of the hottest industries in the energy
sector, thanks mainly to concerns about carbon emission, climate
change and other environmental issues. QCLN is based
on the NASDAQ Clean Edge Green Energy Index. Launched in
2007, the fund now has $194.8 million.
The industry is currently ranked #4 (out of 62) on the Zacks M
QCLN holds 42 securities in its basket and is top heavy with top
10 holdings accounting for more than 60% of assets. Current
investor darling Tesla Motors is the top holding with more than
12% of the asset base. (Read:
Solid Tesla earnings put these ETFs in focus
The fund has delivered scorching returns of almost 95% in the
last one year.
QCLN is a Zacks Rank #1 (Strong Buy) ETF.
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NASDAQ-CL EDG G (QCLN): ETF Research Reports
SPDR-SP AER&DEF (XAR): ETF Research
SPDR-FINL SELS (XLF): ETF Research Reports
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