2013 is off to a pretty good start for investors. This
strength across the market continues the upward trend that
investors saw-for the most part-in the last 45 days of 2012 as
well, suggesting that a risk-on environment is permeating the
Yet while the S&P 500 was strong and broad market
rose higher, there were a few segments that have really been the
true leaders to start the New Year. Below, we highlight three
ETFs which have seen solid gains in recent trading-far in excess
of the S&P 500-- and could be worth a closer look by
investors seeking strong momentum plays as we push further into
Cashing in on Financials' Strength
Financials have long been a loser, but are now finally
starting to turn things around as several members of the group
have already posted strong results in just the first part of
earnings season. Huge institutions like
Wells Fargo (
Goldman Sachs (
have both posted better-than-expected results, and for very
different reasons no less.
In fact, Wells Fargo led the more 'traditional' banking sector
higher on a strong lending portfolio, while Goldman surged ahead
on solid investment banking revenues. This could suggest that
both sides of the financials segment are seeing continued bullish
trends, a scenario which could persist as the economy slowly
Financial ETFs Set to Rally in Earnings
A broad way to play this trend is via the
First Trust Financials AlphaDEX Fund (
. This product looks to zero in on the top financial firms by
applying their AlphaDEX methodology which ranks stocks by various
growth and value metrics, while stripping out the bottom ranked
25% in the industry.
This results in a fund that has about 165 stocks in its basket
and pretty much no company specific risk; not a single firm has
more than 1.25% of the total assets. The exposure isn't cheap
though as it costs 70 basis points a year in fees, though the
volume is rather high, helping to keep bid ask spreads tight.
Currently, FXO has a Zacks ETF Rank of 1 or 'Strong Buy' and
has surged by about 5.3% in the past month.
Airlines Taking Off
For much of 2012, the broad transportation space was extremely
weak, as concerns were building over the global economic outlook.
This was especially true in the airline segment as many were
worried about a stronger price of crude and a weakened consumer
leading to lower demand for the space.
This has turned around as of late though, as oil prices have
moderated and fears over a fiscal cliff and debt ceiling fight
have been eliminated. Since global air travel remains high and a
slowdown doesn't seem imminent, many have bought up airlines as a
nice cyclical play in this type of market environment (see
New Leadership in the Tech ETF Space?
One easy way to do this in fund form is with the
Guggenheim Airline ETF (
. This ETF charges investors 65 basis points a year in fees,
holding about 30 securities in total in the basket.
The fund has a relatively low PE of about 11.4 and a heavy
focus on American stocks which make up about 70% of total assets.
Among the top holdings are
Southwest Airlines (
, all of which make up at least 15% of assets.
The fund has added more than 5% in the past month and has
surged by over 21% in the trailing three month period.
The wild ride in Japan ETFs
Internationally, things remain somewhat shaky in the developed
world. Europe remains relatively weak-and unfavorable from a
Zacks ETF Rank perspective-while the few remaining nations (like
Canada, Australia, and New Zealand) are heavily dependent on
commodities, save for one, Japan.
Japan could potentially be back on track though, as its new
Prime Minister, Shinzo Abe, has vowed to resurrect the economy at
all costs by boosting inflation (to 2%) and getting the country
finally out of the doldrums. It will certainly be a tough task
but his push for a weaker yen could boost exporters' prospects
and increase the Nikkei this year (see
For Japan ETFs, Think Small Caps
Investors should note though, that this type of lower yen
environment looks likely to reduce gains when you consider
Japanese performance in dollar form, a situation that makes a
fund like the
WisdomTree Japan Hedged Equity Fund (
) a great play. This ETF targets Japanese companies but also
utilizes a currency hedge in order to strip out yen exposure.
This will allow investors to purchase Japanese stocks without
worrying about what the yen is doing, something that could be
very beneficial if Shinzo Abe's plans end up working over the
course of 2013. So, while investors avoid the worst of a weak
yen's effects, they can also benefit from DXJ's focus on
exporters, which look to be the true winners from a low currency
policy by the Japanese government.
This has already started to happen as DXJ has risen by 4.8% in
the trailing one month period, and nearly 24% in the past three
months. Still, some of the gains have been dulled by rising
tensions with China, which is part of the reason that we just
assign the fund a Zacks ETF Rank of 3 or 'hold' for the time
While there is no telling if these performances will continue,
all three do have interesting trends at their back, suggesting
that we could see a continuation once we push past earnings
season. If this is the case, some new leaders are definitely
taking hold of the market, meaning that we may want to consider
cycling into different names this year in order to take advantage
of this new stock environment.
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DELTA AIR LINES (DAL): Free Stock Analysis
WISDMTR-J HEF (DXJ): ETF Research Reports
GUGG-AIRLINE (FAA): ETF Research Reports
FT-FINL ALPHA (FXO): ETF Research Reports
GOLDMAN SACHS (GS): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis
UNITED CONT HLD (UAL): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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