Although the U.S. market appears highly uncertain, there are
still a variety of market segments that can be potential hits for
investors over the long term. This could be especially true in
some segments which have both cyclical and discretionary
characteristics, specifically the waste management industry (
A Closer Look at the Waste Management ETF
).
No matter what is happening in the broader economy, trash will
be produced and in vast quantities. This presents a steady
opportunity for a variety of companies which are able to manage,
dispose of, or eliminate the refuse.
However, there is also a discretionary aspect to the segment
as well; as more is produced and consumed, more trash is
invariably produced, adding to the demand for those in the
industry. Thus, waste management firms are also heavily
correlated to growth levels despite their relatively stable
nature otherwise.
Waste Management Sector in Focus
The U.S. waste industry is divided into two segments, namely
hazardous waste and non-hazardous waste. Most hazardous waste
results from various manufacturing processes and poses threats to
public health or the environment. Non-hazardous waste is divided
into several categories, including municipal solid waste and
several kinds of industrial waste (
The Comprehensive Guide to Consumer Staples
ETFs
).
Management of both these types of wastes plays a very
important role in any economy as it involves the removal of tons
of materials in an efficient and timely manner that also keeps
the product relatively segregated and safe from the general
populace.
Due to this, there are often significant barriers to entry,
either in terms of switching costs, network effects, or
regulatory hurdles, helping to keep the sector a solid long-term
play for patient investors.
The strong sector fundamentals have thus helped waste
management firms to hold steady in this current market
environment. Thanks to some of these benefits, the sector ranks
favorably within our Ranking system, especially from an ETF
look.
About the Zacks ETF Rank
This technique provides a recommendation for the ETF in the
context of our outlook of the underlying industry, sector, style
box, or asset class. Our proprietary methodology also takes into
account the risk preferences of investors as well.
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of five ranks within each
risk bucket. Thus, Zacks Rank reflects the expected return of an
ETF relative to other ETFs with a similar level of risk (read
ETFs That Will Haunt Your Portfolio
).
Using this strategy, we have found one ETF which is Ranked 1
or 'Strong Buy' in the waste management industry which we have
highlighted in greater detail below:
Market Vectors Environmental Services ETF (
EVX
)
The Market Vectors Environmental Services ETF seeks to
replicate the price and yield performance of the NYSE Arca
Environmental Services Index. The fund was initiated in October
2006 and since then has managed to build assets under management
of $19.9 million (
Ten Biggest U.S. Equity Market ETFs
).
The product holds a total of 22 securities in which Republic
Services, Inc. (
RSG
), Waste Management, Inc. (
WM
) and Stericycle, Inc. (
SRCL
) hold the top three positions. The top three companies get
double-digit allocation in the fund while, among others, the fund
does not appear to invest more than 9.31%. The fund appears to be
concentrated in the top 10 holdings with more than 65% of asset
base invested in that group.
In terms of sector exposure, Industrials dominates the holding
pattern and the fund's performance largely depends on it as it
takes the major chunk of the asset base. In this sector, the fund
has allocated more than 70% of its asset base (
Three Industrial ETFs Outperforming XLI
). Utilities and Energy take the second and third spots.
From a market capitalization perspective, the fund does not
appear to be inclined to any specific market cap level and
allocates the asset base almost equally among the various market
cap ranges. Large caps get a share of 39.8% while mid caps and
small caps get an allocation of 29.6% and 30.6%,
respectively.
EVX charges an expense ratio of 55 basis points from the
investor on a yearly basis. The fund is heavily invested in
Industrials and its performance largely depends on the
performance of the sector. U.S. Industrial sector performance has
been robust with rising industrials production levels and higher
capacity utilization rate.
This positive aspect of the sector positively impacted the
performance of the fund which delivered a return of 13.4% over a
span of one year and 7% in the year-to-date period. This decent
performance, along with the long term health of the space, could
make EVX an interesting pick for investors seeking more
industrial exposure in a potentially lower risk segment at this
time.
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MKT VEC-ENV SVC (EVX): ETF Research Reports
REPUBLIC SVCS (RSG): Free Stock Analysis
Report
STERICYCLE INC (SRCL): Free Stock Analysis
Report
WASTE MGMT-NEW (WM): Free Stock Analysis
Report
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