5 ETFs At the Forefront of the Great Rotation

The resurge in coronavirus cases in recent months has resulted in stock rotation from high-growth sectors to value companies. The trend was more visible last week when investors dumped technology giants in favor of cyclical sectors like manufacturers, energy, financials and industrials.

Notably, the blue-chip Dow Jones Industrial Average gained 2.3% last week, outperforming the tech-heavy Nasdaq Composite Index, which shed nearly 1%. This marks the 124-year old benchmark’s biggest weekly outperformance against the tech-heavy benchmark since Jun 5, according to Dow Jones Market Data.

The cyclical sectors, which were beaten down badly this year, are attractively valued at the current levels and have become bargain picks. As stocks in these sectors are tied to economic activities, these perform well when growth improves. The latest bouts of data on jobs, manufacturing and consumer confidence suggest that the economy is improving. The Fed’s latest Beige Book survey showed that the United States saw an uptick in business activity in the beginning of July as states eased restrictions to contain the novel coronavirus pandemic. Additionally, the slew of fiscal and monetary stimulus is expected to provide an upside to the stock market (read: ETFs That Can Ride High on Improving Consumer Confidence).

Value investing also made a comeback last week with the SPDR Portfolio S&P 500 Value ETF SPYV gaining 3.4% against loss of 0.2% for its growth counterpart SPDR Portfolio S&P 500 Growth ETF SPYG.

Given the great rotation, some ETFs, which were depressed this year, have showed strong performance last week. We have highlighted them in detail below:

Invesco S&P SmallCap Materials ETF PSCM – Up 9.3%

This fund offers exposure to companies that are principally engaged in producing raw materials, including paper or wood products, chemicals, construction materials, and mining and metals. It follows the S&P SmallCap 600 Capped Materials Index, holding 36 securities in its basket. From an industrial look, chemicals takes the largest share at 57.5% followed by metals & mining (23.9%) and paper & forest products (15.7%). The fund has AUM of $8.2 million and trades in volume of 3,000 shares a day on average. It charges 29 bps in annual fees and has plunged 13.7%. The product has a Zacks ETF Rank #4 (Sell) with a High risk outlook.

Legg Mason Small-Cap Quality Value ETF SQLV – Up 7.5%

This ETF offers exposure to high-quality, U.S.-traded small-cap stocks with relatively low valuations by tracking the Royce Small-Cap Quality Value Index. It holds 248 stocks in its basket with key holdings in financials, health care, industrials, information technology and consumer discretionary. The product has gathered $11.4 million in its asset base while trades in volume of 2,000 shares a day on average. It charges 62 bps in annual fees and plunged 17.6% so far this year (read: Trump or Biden, Small-Cap Stocks & ETFs to Gain). 

Invesco S&P SmallCap Industrials ETF PSCI – Up 6.6%

This product follows the S&P SmallCap 600 Capped Industrials Index, which measures the performance of companies engaged in the business of providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense, and general manufacturing. The product has a basket of 95 securities and expense ratio of 0.29%. It has AUM of $36.6 million while trading in lower volume of 6,000 shares. PSCI is down 14.4% year to date and has a Zacks ETF Rank #4 with a High risk outlook.

iShares Dow Jones Transportation Average Fund IYT – Up 6.4%

The ETF provides exposure to U.S. airlines, railroad and trucking companies by tracking the Dow Jones Transportation Average Index. It holds a small basket of 20 stocks and charges 42 bps in fees per year from investors. Railroads takes the top spot with 37% share in the basket, while air freight and logistics (27.7%), trucking (20.3%) and airlines (9.5%) round off the next three. The fund has accumulated nearly $614 million in AUM and trades in average daily volume of 236,000 shares. It has tumbled 9.5% so far this year and has a Zacks ETF Rank #4 with High risk outlook (read: Travel & Leisure ETFs Jump on Vaccine Optimism).

VanEck Vectors Gaming ETF BJK – Up 6.3%

This ETF provides investors with exposure to companies involved in casinos and casino hotels, sports betting, lottery services, gaming services, gaming technology and gaming equipment. It follows the MVIS Global Gaming Index, holding 42 securities in its basket. The product has AUM of $49.3 million and average daily volume of roughly 31,000 shares. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook. BJK is down 15.4% year to date.
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iShares Transportation Average ETF (IYT): ETF Research Reports

VanEck Vectors Gaming ETF (BJK): ETF Research Reports

Invesco SP SmallCap Materials ETF (PSCM): ETF Research Reports

SPDR Portfolio SP 500 Value ETF (SPYV): ETF Research Reports

SPDR Portfolio SP 500 Growth ETF (SPYG): ETF Research Reports

Invesco SP SmallCap Industrials ETF (PSCI): ETF Research Reports

Legg Mason SmallCap Quality Value ETF (SQLV): ETF Research Reports

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