Beat the Cold Weather with These Hot Sector ETFs - ETF News And Commentary
January 10 2014 - 12:08PM
Zacks
Lowest temperatures in
more than two decades have left most parts of America shivering. In
particular, the Midwest and Northeast, experienced arctic-like
conditions after the polar vortex. Southern U.S. is also seeing
freezing temperatures.
This is restricting the movement of people and goods by road, air
or ship and hurting some food companies. However, some sectors are
likely to reap benefits from this severe weather condition.
Investors might like to cash in on this opportunity in the form of
ETFs that carry lower risk compared to individual stock holdings.
For those investors, we have highlighted some ETFs that could be in
focus and move higher on rising demand in the coming days:
Energy ETFs
Oil and gas price has risen this week in anticipation of rising
demand and falling supply. Harsh weather is curtailing production
and disrupting some refinery operations while boosting demand for
heating fuel. This combination of rising demand and falling supply
will push up oil and gas prices further (read: Will the Clean
Energy ETF Surge Continue in 2014?).
In order to play this surge, investors could either deal directly
in the futures market or concentrate on oil and gas producers. The
two lucrative choices in this space could be SPDR S&P
Oil & Gas Exploration & Production ETF (XOP) and
First Trust ISE-Revere Natural Gas Index Fund
(FCG). While XOP provides equal weight exposure to the
basket of securities in oil and gas, FCG provides the same to the
natural gas space.
XOP has $717.6 million in AUM invested across 81 securities and FCG
holds 30 stocks in its basket having $453.6 million in its asset
base. In terms of annual fees, XOP is cheaper than FCG by 25 bps.
However, FCG is expected to outperform XOP as it has a Zacks ETF
Rank of 2 or ‘Buy’ rating while XOP has Zacks ETF Rank of 3 or
‘Hold’ rating.
For the futures market, investors have United States Oil
Fund (USO) for direct exposure to the spot price of WTI
and United States Natural Gas Fund (UNG) for
natural gas spot price (read: Will Natural Gas ETFs Extend Their
Winning Streak?).
Utility ETFs
Utility companies are poised to benefit from severe cold as more
Americans use electricity for heating, leading to higher bills.
Though there are several ETFs in this space, the two ultra-popular
Utilities Select Sector SPDR (XLU) and
Vanguard Utilities ETF (VPU) might be good options
(see: all the Utilities ETFs here).
With AUM of $4.5 billion, XLU provides exposure to a small basket
of 31 securities with nearly 57.4% concentration on the top 10
firms. Electric utilities take the top spot in terms of sector at
54.33%, closely followed by multi utilities (37.84%). The ETF
charges 0.18% in expense ratio. Though the fund could get a boost
in the near term from a freezing U.S., investors should note that
the long-term outlook on the fund remains bleak with a Zacks ETF
Rank of 4 or ‘Sell’ rating.
On the other hand, VPU has amassed nearly $1.3 billion in asset
base and charges 14 bps in annual fees. The fund is home to 78
securities and the top 10 companies hold about 46.4% of total
assets. Here again, electric utilities take the lion’s share with
51.8%, followed by multi utilities. The ETF has a decent Zacks ETF
Rank of 3 or ‘Hold’ rating.
Retail ETFs
Some retailers could see an uptick in demand. These include space
heaters, shovels, snow blowers, apparels, and other cold-weather
accessories. This would lead to higher stock prices and investors
could well tap this opportunity through SPDR S&P Retail
ETF (XRT) and Market Vectors Retail ETF
(RTH).
XRT provides diversified exposure to the basket of 104 retail
stocks as none of these holds more than 1.13% of assets. In terms
of sector holdings, the fund allocates double-digit exposure to
apparel retail, specialty stores, automotive retail and Internet
retail. The ETF has over $1 billion in AUM and charges 35 bps in
fees and expenses (read: A Comprehensive Guide to Retail ETFs).
Holding 26 securities, RTH is concentrated in the top 10 securities
at 59% of total assets. From a sector look, specialty retail takes
the top spot at 33% while hypermarkets, departmental stores and
healthcare services round off to the next three spots. The fund has
managed assets of $40.5 million and has expense ratio of 0.35%.
Both the products have a Zacks ETF Rank of 2 or ‘Buy’ rating.
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FT-ISE R NAT GA (FCG): ETF Research Reports
MKT VEC-RETAIL (RTH): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
VIPERS-UTIL (VPU): ETF Research Reports
SPDR-SP O&G EXP (XOP): ETF Research Reports
SPDR-SP RET ETF (XRT): ETF Research Reports
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