Top Performing Sector ETFs of August

Despite a slow start to August, the U.S. markets again hit multiple highs with the S&P 500 crossing the major milestone of 2,000 and Dow Jones reaching 17,100 for the first time in history. In fact, the S&P 500 returned nearly 3.4% while Dow Jones gained 3.1% so far in the month.

This is primarily thanks to a slew of upbeat economic data that point to stronger economic growth, recovering housing fundamentals, a healing job market and increasing consumer confidence. Additionally, solid second quarter earnings growth and increased M&A activities supported the rally.

The gains came despite the aggravating conflict in Ukraine, ongoing violence in Israel and uncertainty over interest rates hike that are continuously keeping market returns at check. In such a backdrop, a few sectors have performed exceptionally well and are leading the market higher (see: all the Categories ETF here).

Below, we have highlighted three sectors and the related ETFs that have been the star performers in the month and could be better plays as we move into the next month.

Biotech

The biggest winner this month, no doubt, is the healthcare space, in particular biotech. Most of the gains in this corner of the market have come from strong earnings growth and a merger and acquisition frenzy. Further, the ever-increasing healthcare spending, an insatiable demand for new drugs, an aging population, a spending boom in emerging markets and Obamacare are fueling growth in the sector (read: Are Biotech ETFs Back on Track?).

Though almost all the biotech ETFs have provided handsome returns in August, First Trust NYSE Arca Biotechnology Index Fund (FBT) is leading the way with double-digit gains. The fund has amassed over $1.5 billion in its assets base and trades in a good volume of more than 173,000 shares a day. It charges investors 60 bps in fees per year.

This fund follows the NYSE Arca Biotechnology Index and holds about 20 securities in its basket. It is largely concentrated on the top firm – InterMune (ITMN) – that makes up for 7.7% of assets while other firms hold less than 6% share. The ETF is spread across various market caps – 39% in large caps, 34% in small caps and the rest in mid caps with a tilt toward growth stocks at 79%. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook (read: Biotech ETFs Surge on InterMune-Roche Deal).

Green Energy

The clean energy space has seen a strong rebound primarily thanks to rising demand and lack of supply for photovoltaic panels as well as solid performances by the stocks. In particular, Tesla Motors (TSLA) radiated optimism in the entire space with impressive earnings and a positive report from Deutsche Bank.

This has translated into to a great month for First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN), which has surged 8.8% so far. The fund provides exposure to clean energy companies across a wide range of industries, including solar power, biofuels, advanced batteries as well as the installation of new technological systems by tracking the Nasdaq Clean Edge Green Energy Index (read: 2 ETFs in Focus on Tesla Earnings Beat).

In total, the product holds 50 securities in its basket with the largest allocations to Tesla, First Solar (FSLR) and Linear Technology (LLTC). These firms combine to make up for 23.4% of total assets. About half of the portfolio is allocated to small caps while mid caps take the remainder with just 9% going to large cap stocks. Additionally, it is well spread out across various style boxes.

The fund manages assets worth $133.6 million and sees good volume of about 129,000 shares a day. QCLN charges 0.60% in expense ratio and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.

Semiconductor

The technology sector has shown immense strength over the past couple of months thanks to solid industry fundamentals and investors’ continued acclaim for the value-centric traditional stocks of semiconductors. Further, earnings beat from some semiconductors industry primes such as Intel (INTC), Micron Technology (MU), Broadcom (BRCM) and Texas Instruments (TXN) have fueled optimism in the broad space.

SPDR S&P Semiconductor ETF (XSD) is the top performer, having gained 8.8% so far in the month, closely followed by a gain of 8.7% for PowerShares Dynamic Semiconductors Fund (PSI). XSD tracks the S&P Semiconductor Select Industry Index, holding 50 stocks in its portfolio. It is widely spread across each security as none of these allocates more than 3.17% of the assets (read: Enjoy the Semiconductor Stock Rally with this Top Ranked ETF).

The product has a definite tilt toward small cap stocks at 59%, followed by 27% in mid caps and 14% in large caps. It has a nice mix of growth, value and blend securities. The fund has accumulated $196.4 million in AUM and charges 35 bps in fees per year. Volume is moderate as it exchanges 101,000 shares a day on average. The product has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with High risk outlook.

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