Though uncertainty over the Fed's policy as well as the partial
government shutdown are keeping the markets volatile, U.S. equites
are still near their all-time highs. This is primarily thanks to
upbeat labor data, recovering hosing fundamentals and improved
retail data that led to increasing consumer confidence.
Given this bullish trend, the third quarter earnings season does
not seem too bad with earnings for S&P 500 companies expected
to be up 1.4% from the year-ago quarter, according to
the Zacks Estimate
. Further, revenues for these companies are also expected to
increase 2.1% from the same quarter last year.
Meanwhile, some sectors are poised for solid earnings and revenue
growth as the Q3 earnings season has already kick-started with
impressive results from some of the bellweathers such as Adobe
), FedEx (
) and Oracle (
) in late September (read:
Top Ranked ETFs for Q3 Earnings
As such, investors should consider some sector ETFs that are
expected to report positive earnings growth in the coming weeks.
Below, we have highlighted three ETFs that could emerge as winners
this earnings season and are expected to outperform the overall
The homebuilding and construction sector would likely be the major
contributor to both earnings and revenue growth this earnings
season. It is expected to report 22.2% earnings growth and 11.1%
revenue growth on year-over-year basis for the third quarter.
This is because the housing market is showing continued improvement
on the back of higher home prices and better home sales data.
Though rising mortgage rates had put a recovery on hold, the latest
decision by the Fed to continue its bond buying program has fueled
bullishness into the sector (read:
Rocky Road Ahead for Homebuilder ETFs?
Investors could tap this growing opportunity in the sector with the
iShares Dow Jones US Home Construction Index Fund
. This fund follows the Dow Jones US Select Home Builders Index and
holds a small basket of 33 stocks. It is heavily concentrated in
its top 10 firms with 63% of the total assets. Additionally, the
product puts more focus on home construction, indicating that it is
a 'pure play' on the space.
The fund is popular and liquid with AUM of just under $2 billion
and average daily volume of nearly six million shares. The ETF
charges 46 bps in fees and expenses. ITB gained over 7% so far this
year and currently has a Zacks ETF Rank of 1 or 'Strong Buy' rating
with 'Medium' risk outlook.
The transport sector is expected to one of the best performers of
Q3 on a reviving U.S. economy and solid results from FedEx (read:
Transport ETFs in Focus on FedEx Earnings Beat
). The positive trends in the economy suggest growing demand for
movement of goods across many economic sectors.
Investors should note that transport is often considered a
barometer of broad economic health as it grows when U.S. economic
activity picks up. Further, the sector has a direct correlation
with retail and manufacturing numbers. The sector is expected to
post 10.7% earnings growth and 5.6% revenue growth.
One way to play this trend is with
iShares Dow Jones Transportation Average Fund (
. The ETF tracks the Dow Jones Transportation Average Index, giving
investors exposure to the small basket of 21 securities.
The product puts heavy focus on its top 10 firms at roughly 67%.
Further, from a sector perspective, the fund is tilted toward
railroads at 30% while delivery service sector makes up for nearly
The fund has accumulated $644 million in AUM while sees good volume
of trading. It charges 46 bps in fees and expense. IYT delivered
robust return of 26.42% in the year-to-date time frame and has a
Zacks ETF Rank of 1 or 'Strong Buy' with a 'Medium' risk outlook.
Financials in Q3 have been benefited the most from the growing
speculation over the Fed tapering and the resultant interest rate
rise. However, with the Fed now keeping its $85 billion in monthly
QE intact, the financial sector has seen some downside creating a
nice opportunity for investors (read:
Financial ETFs Tumble on Citigroup Warning
In fact, the finance sector earnings are expected to increase 7.4%
on an annual basis on revenue growth of 7.7% in the third quarter.
This is because the sector is benefiting from growing demand for
some types of trading and its potential for increasing dividends
and buybacks. Notably, financials have accounted for the largest
increase in dividends in the last three years.
Investors could find the ultra-popular
Financial Select Sector SPDR Fund (
an exciting pick to benefit from the current trends. The fund
tracks the S&P Financial Select Sector Index and has amassed
over $15 billion in its asset base. Volume is massive, trading in
more than 46 million shares a day. The ETF charges just 0.18% in
all the Financial ETFs here
The product holds 83 securities in its basket, with moderate
concentration (around 50%) in the top 10 holdings. The ETF is quite
spread across sectors with diversified financial service taking
32.2% share, followed by insurance and commercial banks with at
least 17% share each. XLF is up over 24% YTD. The product currently
has a Zacks ETF Rank of 1 or 'Strong Buy' rating with 'Low' risk
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ISHARS-US HO CO (ITB): ETF Research Reports
ISHARS-TRAN AVG (IYT): ETF Research Reports
SPDR-FINL SELS (XLF): ETF Research Reports
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