After posting two 'above par' earnings season for two
consecutive quarters, corporate America has undoubtedly failed to
keep up its solid pace in the latest earnings season. This is a
direct result of a generic slowdown across the globe which has
caused a decrease in private consumption expenditure (PCE). Private
consumption has been the major laggard variable contributing to the
poor GDP growth rate of 1.5% for the second quarter.
Clearly, a series of domestic as well as global economic
turbulences across board have shaken the growth foundation that the
American economy has been striving for after withstanding
overwhelming recessionary shocks post 2008 sub-prime crisis. The
consecutively weak jobs data, a series of credit rating downgrades
and the sluggish GDP number may be an indication that the
worst may be far from over.
However, fiscal 2012 has not entirely been a sad story for the
markets. After posting double digit gains for the first quarter,
the markets were not able to extend their gains further. Increased
volatility across all asset classes was triggered by the risk
aversion climate among investors.
Fortunately, markets have come back in recent months, erasing
some of the pain from the second quarter of the year. Yet, going
forward, an uncertain trend is most likely to continue, especially
if the policy makers fail to respond to the situation across the
PIIGS nations and if emerging markets look to slow down further
Three Resilient European ETFs Still Going
For most products from the exchange traded fund (ETF) space, the
story has pretty much been the same. After getting off to a good
start the previous fiscal year, most ETFs lost their way from the
second quarter 2011 onwards. The reason for this can be explained
by the broader market slump that was a direct result of a series of
unwanted economic developments from the domestic as well as the
Thankfully for most investors who look to play the markets via a
basket approach, most (if not all) sector-based, as well as broad
market ETFs have finally starting to bottom out after putting up a
dismal performance last year (see
Do You Need a High Momentum ETF?
Dow Jones U.S. Home Construction ETF (
), and the SPDR S&P Homebuilders ETF (
are great examples of the above statement, having surged from their
In fact, comparing the performance of the aforementioned
products reveals the extent to which
have rebounded and outperformed the broader market after biting the
dust. The table below compares their performances with that of the
S&P 500 for various time periods over the past one year.
ETF / INDEX
Year to Date returns (as of 8/6/12)
1 Year returns (as of 8/6/12)
Quarter 2012 Returns
Quarter 2012 Returns
Rebound from 52 week low (as of 8/6/12)
As you can see, these products, while possessing some rocky
performances in some time periods, have bounced back quite strongly
from their 52 week lows, far in excess of what the broad market has
seen. This suggests that at least a couple ETFs are seeing more
robust levels of momentum and interest from investors, despite the
overall gloomy tone over stocks at this time.
Below, we highlight these strong performing products which could
be interesting choices for investors seeking high momentum plays,
or ones that could be entering overbought territory and thus are
now potential short candidates:
The two funds,
, are largely in the same sector and have been impacted by similar
trends. The two occupy a dominant space in the building and
construction space and make up more than 90% of the assets in this
After the dark days of the housing bubble burst back in the
latter years of the previous decade, the U.S. housing market has
been attempting for a turnaround since the bottom fell out in this
crucial market segment (read
Is it Time to Buy Build America Bond ETFs?
To say the least, the past few years have been very sluggish for
the housing market. High levels of unemployment, lower consumer
confidence, a slowdown in the economy, and far more strict
compliance norms for mortgage lending had been major bottlenecks
for the industry as a whole.
However, the industry has been rebounding slowly but surely.
Lower mortgage rates, an increase in consumer confidence in the
housing market and increased demand are some of the positives for
the industry. Moreover, most of the companies from this sector have
implemented tighter cost control mechanisms which has, in turn, led
to an increase in margins.
are direct beneficiaries of the housing sector rebound and are up
101.22% and 76.82%
respectively from their
. The uptrend is expected to continue in these two products given
the low interest rates scenario and further increase in demand for
Five Best Performing ETFs (So Far) in 2012
However, questions still remain about the timing and intensity
of a full fledged economic recovery. Both of these factors are
functions of the homebuilder industry, would remain vulnerable to
the trends and cyclicality in the economy (see more in the
Zacks ETF Center
Investors should also note that while the two solid performers
are in the housing industry, they have a different focus which had
led to these somewhat divergent returns over the past year.
Additionally, ITB currently has a Zacks ETF Rank of 1 while XHB has
a still solid Rank of 3 or 'hold'.
ITB follows the Dow Jones U.S. Select Home Construction Index
which measures the performance of the home construction industry in
the U.S stock markets. ITB employs a representative sampling
technique to include stocks in its portfolio from the underlying
index. The ETF is appropriate for investors looking for a pure play
in the homebuilder segment as it provides concentrated exposure to
stocks from this segment.
On the other hand, XHB tracks the S&P Homebuilders Select
Industry Index. This index is a sub industry portion comprising the
homebuilder stocks from the S&P 500 Total Market Index. The
S&P Homebuilders Select Industry Index is an equal weighted
index. However, it does not provide a pure play in the homebuilder
industry as it is exposed to a variety of complementary
Also, contributing to the tremendous growth of these two ETFs is
the small and mid cap focus of these two funds, since mid and small
cap stocks tend to outperform their large cap peers during an
Mid Cap ETF Investing 101
). According to xtf.com, ITB is exposed to small cap stock to the
extent of 27% and mid cap stocks to the extent of 55%. Whereas, XHB
allocates 51% of its total assets in small cap stocks and around
40% to the mid cap segment.
These differences in sector exposure and capitalization levels
are the keys for the divergent returns in the past few months.
While they have led to ITB's outperformance so far, this could
change if we see more of a focus on consumers as opposed to solely
home construction as we close out 2012.
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ISHARS-DJ HO CO (ITB): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
SPDR-SP HOMEBLD (XHB): ETF Research Reports
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