Markets

Top and Flop ETFs to Start Third Quarter

Stock markets across the globe were off to a strong start in the third quarter buoyed by hopes of coronavirus vaccines and a slew of stimuli by central banks. Additionally, pickup in activities after the reopening of economy lent supported.

In particular, the United States created 4.8 million jobs in June, the highest since the Labor Department began keeping record in 1939, as more restaurants and bars resumed operations. Manufacturing activity rebounded in June, hitting its highest level in more than a year while consumer confidence logged in the biggest gain since 2011. The Federal Reserve’s 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.

The rally came despite surging new coronavirus cases that raised questions over continued recovery as well as weak earnings expectations.

Given this, many corners of the market have seen smooth trading while a few lag. Below, we have highlighted ETFs from the best and worst zones to start the third quarter.

Best Zones

Treasury


The second wave of coronavirus crisis has compelled investors to shift toward safer havens like bonds. iPath US Treasury 5-year Bull ETN DFVL was the biggest winner, having soared 41%. It offers exposure to the Barclays 5Y US Treasury Futures Targeted Exposure Index, charging investors 75 bps in annual fees. The note has amassed $6.1 million in its asset base and trades in average daily volume of under 1,000 shares. It has a Zacks ETF Rank #3 (Hold).

Clean Energy

The clean energy space has been showing strength on the presumptive Democratic presidential candidate Joe Biden’s push for clean energy and infrastructure plans. Additionally, the merger between Sunrun Inc. RUN and Vivint Solar VSLR added to investors’ enthusiasm. While many clean energy ETFs has been surging, Invesco Solar ETF TAN led the way gaining 21.6%. This ETF offers global exposure to 28 solar stocks by tracking the MAC Global Solar Energy Index. U.S. firms dominate the fund’s portfolio with nearly 49.6% share, followed by China (21.8%) and Spain (7.6%). The product has amassed $612.5 million in its asset base and charges investors 71 bps in fees per year. It trades in volume of 466,000 shares and has a Zacks ETF Rank #2 (Buy) (read: Clean Energy ETFs in Focus on Sunrun-Vivint Solar Deal).

Biotech

The biotech sector has been riding high given the positive developments in coronavirus treatments or vaccines. Moderna Inc. MRNA has inched closer to a vaccine following promising clinical phase 2 data, which showed a robust immune response across all dose levels as it produced neutralizing antibodies in all 45 patients. Additionally, two out of four of the potential COVID-19 vaccines from Pfizer PFE in collaboration with German biotech firm BioNTech received fast track designation from the U.S. health agency, thereby speeding up the review process. ETFMG Treatments Testing and Advancements ETF GERM has been the clear winner of this trend, jumping 18% in the first three weeks of the third quarter. This fund offers direct exposure to biotech companies directly engaged in the testing and treatments of infectious diseases by tracking the Prime Treatments, Testing and Advancements Index. It holds 56 stocks in its basket and charges 68 bps in annual fees. The ETF has amassed $50.4 million in its asset base within one month of debut and trades in average daily volume of 171,000 shares (read: How to Tap Red-Hot Moderna Stock With ETFs).

Worst Zones

Master Limited Partnerships (MLPs)


MLPs lost investor attention due to cuts in yields by midstream partners. As such, Credit Suisse S&P MLP ETN MLPO has declined 14.2%. This ETN is linked to the S&P MLP Index, which includes both master limited partnerships and publicly traded limited liability companies having a similar legal structure to MLPs and sharing the same tax benefits as MLPs. It is unpopular and illiquid in the MLP space with AUM of $16.2 million and average daily volume of 8,000 shares. The note charges 95 bps in annual fees (read: 5 Sector ETFs That Beat the Market in June).

Volatiity

Volatility products have been the losers to start the second quarter even though the coronavirus crisis has worsened. In particular, iPath Series B S&P 500 VIX Short-Term Futures ETN VXX has plunged 9.8%. It focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months of VIX futures contracts. This ETN is unpopular and illiquid with AUM of $869.9 million and average daily volume of 44 million shares. The note charges 89 bps in annual fees.

Banks

The banking sector took a dive on the Fed’s recent stress test amid concerns over new capital buffer requirements. While most of the banks stock saw rough trading to start the new quarter, Invesco KBW Regional Banking ETF KBWR shed 5.1%. This fund provides exposure to 51 companies primarily engaged in U.S. regional banking activities by tracking the KBW Nasdaq Regional Banking Index. It is a relatively less-popular and less-liquid option in the space, with AUM of $29.1 million and average daily volume of 7,000 shares. It charges 35 bps in fees per year from investors and has a Zacks ETF Rank #3.

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Pfizer Inc. (PFE): Free Stock Analysis Report

Moderna, Inc. (MRNA): Free Stock Analysis Report

Vivint Solar, Inc. (VSLR): Free Stock Analysis Report

Invesco Solar ETF (TAN): ETF Research Reports

iPath Series B SP 500 VIX ShortTerm Futures ETN (VXX): ETF Research Reports

Sunrun Inc. (RUN): Free Stock Analysis Report

Invesco KBW Regional Banking ETF (KBWR): ETF Research Reports

Credit Suisse SP MLP Index ETN (MLPO): ETF Research Reports

iPath US Treasury 5year Bull ETN (DFVL): ETF Research Reports

ETFMG Treatments, Testing and Advancements ETF (GERM): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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