American recovery seems to be losing momentum as the China-led global economic slowdown has started to hurt economic growth. This is clearly reflected in the dismal job reports for September. The U.S. economy added just 142,000 jobs in September, much below the economists' expectation of 200,000. This represents the second consecutive month that job gains came below 200,000.
Additionally, the number of jobs created was revised down to 136,000 from 173,000 for August and to 223,200 from 245,000 for July. As a result, job gains averaged 167,000 per month over the past three months. Meanwhile, unemployment stuck to its seven-year low of 5.1% while average hourly wages ticked down one-cent to $25.09 but were up 2.2% year over year.
The disappointing job data dampened the prospect of interest rates hike for later this year. Further, the Fed in its latest FOMC meeting kept its interest rates unchanged citing a weak global economy, low inflation, falling commodity prices and instability in financial markets. This suggests that cheap money flows will be in place for longer than expected (read: 5 Hot ETFs Post Fed Meeting ).
ETFs to Watch
The news has raised fresh fears about a slowdown in the U.S. economy and initially pushed the major indices lower. However, the bourses recovered and logged in more than 1% gains at the end of the day. Notably, the Dow Jones and the S&P 500 recorded the biggest reversal in four years.
As a result, a few ETFs were severely impacted by the weak jobs data while a few are expected to gain in the weeks ahead. Below, we have highlighted some that are especially volatile post jobs data and decreased chances of a rates hike:
Market Vectors Gold Mining ETF ( GDX )
The biggest winners from the disappointing job growth number are definitely the mining stocks, in particular gold and silver. This is because lower hiring raised concerns over U.S. economic growth, thereby leading investors to turn their focus on safe investment. Acting as a leveraged play on the underlying metal prices, mining stocks tend to experience more profits than their bullion cousins in the rising metal market (see: all the Material ETFs here ).
Though there are several ETFs that enjoyed strong gains, GDX added about 8% on the day. This is the most popular and actively traded gold miner ETF with AUM of $4.7 billion and average daily volume of more than 48 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 36 stocks in its basket. Canadian firms account for 55.1% of the assets, followed by the U.S. (13.2%) and South Africa (10.4%). The product has some concentration issues, as it allocates 54.6% to the top 10 firms.
First Trust Emerging Markets Small Cap AlphaDEX Fund ( FEMS )
The appeal for the emerging market securities has returned with weaker-than-expected job data as this might delay the prospect of a rates hike boosting capital inflows into these nations. While most ETFs in this space have seen smooth trading post jobs report, FEMS surged 4.5% on the day. The fund currently follows the Defined Emerging Markets Small Cap Index and targets the small cap segment of the emerging market space (read: Emerging Market ETFs Slip to 52-Week Lows ).
Holding 202 securities, the fund is well spread out across each component, with none of the securities holding more than 2.41% share. The Chinese firms take the top spot at nearly 31.4%, closely followed by Taiwan at 19.2%. The product is often overlooked by investors, as depicted by AUM of $28.7 million and average daily volume of roughly 18,000 shares. The expense ratio came in higher at 0.80%.
iShares 20+ Year Treasury Bond ETF ( TLT )
The U.S. Treasuries jumped on the news, pushing the 10-year yields to below 2% on the day. Though all categories have held up higher on the session, long-term Treasury bond ETFs benefited the most from the weak job data. The most popular and liquid ETF that provides exposure to the long-term Treasury bond market is TLT.
The fund tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index and has AUM of $6.4 billion. Expense ratio came in at 0.15% while average daily volume is solid at over 9.3 million shares. Holding 30 securities in its basket, the fund focuses on the top credit rating bonds with an average maturity of 26.81 years and effective duration of 17.46 years. The fund added 0.6% in Friday's trading session and has a Zacks ETF Rank of 2 or 'Buy' rating with a High risk outlook.
SPDR S&P Regional Banking ETF ( KRE )
The financial sector has been crushed by the weak jobs data and resultant drop in yields, as it tends to benefit from the steepening yield curve. In particular, the regional banking corner was hit the most, with the ultra-popular KRE plunging nearly 1.6% (read: Guide to the 7 Most Popular Financial ETFs ).
The product follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. Holding 93 securities in its basket, the fund is widely spread out across each security with an equal-weigh approach of around 1%. It has amassed over $2.4 billion in its asset base while it trades in a solid volume of 4.4 million shares a day on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank of 2 with a High risk outlook.
PowerShares DB US Dollar Bullish Fund ( UUP )
The U.S. dollar is expected to lose post disappointing job numbers, which have darkened the prospect for any near-term resumption in the dollar's rally. In fact, UUP with exposure to the U.S. dollar against a basket of six world currencies - euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc - lost 0.2% on the day (read: What Lies Ahead for Dollar ETFs? ).
The ETF tracks the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund's holdings of U.S. Treasury securities. In terms of holdings, UUP allocates 57.6% in euro while 25.5% collectively in Japanese yen and British pound. The fund has so far managed an asset base of $1 billion while sees an average daily volume of around 2.5 million shares. It charges 80 bps in total fees and expenses and has a Zacks ETF Rank of 3 or 'Hold' rating with a Medium risk outlook.
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