4 Top Sector ETFs & Stocks To Cool Off This Summer

While the stock market is sizzling near all-time highs with the start of summer, geopolitical risk is looming large. This is especially true given growing tensions in the Gulf states and the barrage of events including the upcoming UK election and the former FBI Director James Comey's testimony this week (read: Stay Away from These Middle East ETFs on Gulf Rift).

Additionally, European Central Bank's policy meeting and next week’s Federal Reserve meeting are making the market volatile. At the current levels, U.S. stocks look expensive with the S&P 500 trading at a multiple of 25.7 times earnings, as per Morningstar.

However, the momentum in the market has picked up lately with the MSCI U.S. Momentum Index, which tracks companies with maximum price appreciation in the last two to 12 months, rallied for 11 consecutive days through Friday, the longest stretch since October 1992. Notably, the index is up 19% so far this year compared with gains of 9% for S&P 500 index.

The trend is likely to continue this summer given improving global sentiments, strong corporate earnings, and upward revision to first-quarter GDP growth that instilled confidence in the health of the American economy.

Against such a backdrop, investors should look at the ETFs and stocks from the top-performing sectors.

How to Find the Top-Performing Sectors

While identifying the top-performing sector is a daunting task, the Zacks Industry Rank makes this process simpler. The Zacks Industry Rank is determined by calculating the average Zacks Rank for each stock in the industry and then assigning a rank to it. So first, we selected the best industries that have the top Zacks ranks.

A top Zacks Industry Rank means that more stocks within that group are seeing upward earnings estimate revisions. Since an industry is a group of stocks in a similar business, this is the perfect way to size it up (read: all the Top Ranked ETFs).

The Zacks Industry classification divides the business world into 16 sectors comprising 60 medium or M-level industries and 260 plus or X-level industries. We rank all 260 plus X-level industries based on the earnings outlook of the constituent companies in each. Lower scores are always better. Industries with ranks of 2.00–2.64 and 2.65–2.81 are very attractive and attractive, respectively, and are thus the top-performing ones.

Transport

Transportation is the most attractive sector at present with airlines on the top. Thanks to rising U.S. GDP, robust job gains, moderate wage growth, all-time high household net worth and low airfares, a higher number of Americans have geared up for more air travel (read: ETFs & Stocks to Gain Height on Busy Air Summer Travel).

U.S. Global Jets ETF (KL:JETS) : This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 34 securities that are heavily concentrated on the top four firms with at least 12% allocation each. Other firms hold no more than 4.01% share. The fund has gathered $87.7 million in its asset base while sees moderate trading volume of nearly 51,000 shares a day. It charges investors 60 bps in annual fees and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.

Hawaiian Holdings Inc. HA: This Hawaii-based company is the largest airline engaged primarily in the scheduled transportation of passengers, cargo and mail. It has seen solid earnings estimate revision of 20 cents for this year over the past 30 days, representing growth of 0.19% versus the industry’s average decline of 10.38%. The stock has a Zacks Rank #1 (Strong Buy) with a VGM Style Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Materials

Materials is also the most attractive sector with paper industry leading the way, followed by chemicals and agribusiness. Rebounding commodity prices, positive developments in China, pick-up in global manufacturing activities and improving global trends are acting as catalysts to the sector.

Vanguard Materials ETF VAW: With AUM of $2 billion, this fund offers exposure to 122 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. It is slightly skewed toward the top two firms with over 8% share each while the other three account for no more than 6.1% of assets. Chemicals makes up for more than three-fifths of the portfolio, while fertilizers & agricultural chemicals, and paper packaging make up for a nice mix in the portfolio. The ETF has 0.10% in expense ratio while volume is good at 122,000 shares. It has a Zacks ETF Rank of 3 with a Medium risk outlook (read: Material ETFs Rise on Solid Q1 Earnings).

Fibria Celulose S.A. (NYSE:FBR) : This Brazil-based company produces, sells and exports short fiber pulp in Brazil and internationally. The stock saw impressive earnings estimate revision of 28 cents over the past 30 days for this year. It has a Zacks Rank #2 with a VGM Style Score of B.

Consumer Staples

The consumer staples sector is also expected to outperform with soaps-cosmetics and publishing leading the way followed by tobacco. The sector is considered defensive as it is unaffected by economic cycles. It will likely outperform if geopolitics or economic instability flares up.

iShares U.S. Consumer Goods ETF IYK: This ETF targets domestic consumer goods stocks by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 115 stocks in its basket with heavy concentration on the top five firms. From an industrial look, about half of the portfolio is allotted to food beverage tobacco while household & personal products, and consumer durables round off the next two spots with a double-digit exposure each. The fund has amassed $687.1 million in its asset base while trades in a volume of about 52,000 shares. It charges 44 bps in annual fees and has a Zacks ETF Rank of 2 with a Medium risk outlook (read: Should You Buy the Dip in Procter & Gamble via ETFs?).

Unilever PLC (NYSE:UL) : This United Kingdom-based company is engaged in manufacturing of branded and packaged consumer goods, including food, detergents and personal care products. It has seen positive earnings estimate revisions of 10 cents for this year over the past 30 days, with an expected above-average growth rate of 22.12%. The stock has a Zacks Rank #2 with a VGM Style Score of A.

Construction

Construction and building products continued to hog investors’ interest heading into the summer selling season. It belongs to the most attractive sector.

iShares U.S. Home Construction ETF (WA:ITB) : This fund provides a pure play to home construction stocks by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 44 stocks with double-digit allocation going to the top two firms. Other firms hold not more than 8.6% of assets. The product has amassed $1.6 billion in its asset base and trades in heavy volume of around 2.5 million shares a day on average. It charges 44 bps in annual fees and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a High risk outlook (read: Q1 GDP Growth Revised Upward: ETFs to Benefit).

TopBuild Corp. (NYSE:BLD) : This Florida-based company is the installer and distributor of insulation products to the construction industry primarily in the United States. The stock saw solid earnings estimate revision of 15 cents over the past 30 days for the current year, which represents strong earnings growth of 35.88% versus industry average of 9.43%. It has a Zacks Rank #1 with VGM Style Score of B.

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TopBuild Corp. (BLD): Free Stock Analysis Report

ISHARS-US HO CO (ITB): ETF Research Reports

VIPERS-MATERIAL (VAW): ETF Research Reports

ISHARS-US CN NC (IYK): ETF Research Reports

US GLOBAL JETS (JETS): ETF Research Reports

Unilever PLC (UL): Free Stock Analysis Report

Fibria Celulose S.A. (FBR): Free Stock Analysis Report

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