In the current uncertain economic environment with ultra low
interest rates, investors have been starved for income
in 2012. Investors in search of a decent level of current
income have shifted their focus to
with high dividend yields. ETFs with high dividend yields
experienced heavy inflows during the fiscal year 2012 (
Emerging Market ETFs: EEM vs. VWO
Additionally, emerging market became the focus for investment
as many looked to add some growth to their portfolio by investing
overseas. Investors found investment in emerging market to be
more lucrative compared to domestic plays, as many emerging
market ETFs saw outsized returns in 2012.
But in 2013, apart from investing in bonds, high dividend
yield ETFs and emerging market ETFs, investors should also
consider investing in some of the sector ETFs highlighted below
which are seeing favorable Zacks ETF ranks and strong momentum,
especially as the U.S. economy continues to slowly recover:
With uncertainty in the economic environment, investment in
Biotech ETFs makes sense as this sector is less impervious to
broader economic conditions. The sector was one of the best
performers of 2012, and it could continue into 2013 should
M&A activity pick up (
Top 3 Best Performing Healthcare ETFs
With five options in the ETF space towards exposure in the
biotech sector, investors have a few choices in the space. One of
our top ranked products in the space is the
First Trust Amex Biotechnology Index Fund (
. FBT has delivered a robust 40.5% return to investors over a
period of one year and could continue to outperform if current
conditions hold (
Top Ranked Biotech ETF: FBT
The product is home to 20 biotech companies and has its assets
invested across all classes of the market spectrum. A look at the
style pattern reveals that the fund has a preference for growth
This also implies that the fund prioritizes securities on the
basis of earnings growth and tends to have little inclination for
undervalued stocks or securities which trade below their
intrinsic value. Due in part to this, we have assigned the fund a
'high' risk rating, as the standard deviation on this product
could be rather high.
Still, biotech stocks seem well positioned in this type of
market environment and we believe that FBT could be a solid
choice for investors going into 2013. This is evidenced by our
Zacks ETF Rank of 1 or Strong Buy for the ETF.
Homebuilder ETFs were also one of the best performers in 2012.
The housing market is benefiting from an increase in employment
rates, higher consumer confidence and several years of pent-up
Homes are now seen as a better opportunity now thanks to a
stabilization of home prices, low rates on mortgages, and
overbought conditions in many other investment avenues (
Best Construction ETF to Ride the Housing
With the Fed expected to keep interest rates low, the sector
could continue to perform better going into 2013, especially if
housing starts continue to trend higher. However, builders remain
a bit cautious given some fundamental challenges, which includes
a still fragile economy, obstacles related to project funding and
fewer buyers qualifying for mortgage funding.
Despite these risks, an ETF targeting the space could still
make for an interesting play. The
iShares Dow Jones U.S. Home Construction Index
has been the best performing ETF in 2012, delivering a return of
a whopping 78.9% over a period of one year. With housing numbers
expected to improve, this ETF could continue to provide outsized
returns to the investor (
Is XHB a Better Housing ETF Play?
ITB is home to 29 securities in which it invests an asset base
of $1.7 billion. The fund does not appear to be spread across all
securities as the top ten holdings take away 62.8% of the asset
base. The fund charges a fee of 47 basis points from investors on
an annual basis.
Lennar Corp and Pulte group, both of which reported solid
gains in the recent quarter, occupy the top two positions in the
fund. Investment in home construction industry is the top
priority and focus of the ETF, unlike its
counterpart which is much more spread out.
Currently, we have a Zacks ETF Rank of 1 or 'Strong Buy'
assigned to the fund along with a medium risk rating. This
means that we look for some more outperformance for the fund, but
it could be a somewhat volatile ride.
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FT-AMEX BIOTEC (FBT): ETF Research Reports
ISHARS-DJ HO CO (ITB): ETF Research Reports
SPDR-SP HOMEBLD (XHB): ETF Research Reports
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