Investing

5 Sector ETFs That Beat the Market in Q3

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The third quarter proved to be highly volatile and uncertain for the U.S. stock market. After a solid start to the third quarter, Wall Street lost momentum on fears of higher rates for a longer-than-expected period and a slowing Chinese economy. With just a week of trading left, the tech-heavy Nasdaq Composite Index has lost 4.2%, while the Dow Jones and S&P 500 are down 1.3% and 2.9%, respectively.

Despite the weakness, a few sectors are still in green over the past three months. We have highlighted the top-performing ETFs from different sectors. These include Credit Suisse S&P MLP ETN MLPO, AdvisorShares Pure US Cannabis ETF MSOS, Sprott Junior Uranium Miners ETF URNJ, SPDR S&P Oil & Gas Equipment & Services ETF XES and Defiance Pure Electric Vehicle ETF EVXX.

The Fed signaled one more rate hike this year if the economy and inflation don’t cool further. Both retail sales and inflation in the United States came in hotter than expected for August, suggesting resilience in the economy and persistent price pressures. These make a case for more Fed rate hikes. While inflation has fallen from a peak of 9.1%, it remains well above the Fed’s 2% target despite an aggressive interest rate hike campaign.

The latest data also showed that U.S. industrial production continued to expand in August, beating expectations even though the pace of increase decreased due to sluggish manufacturing growth. On the other hand, U.S. consumer sentiment slipped for the second straight month in September as the University of Michigan’s preliminary reading of its Consumer Sentiment Index dropped to 67.7 from the final reading of 69.5 in August. But the economic outlook brightened modestly as household expectations for near-term inflation fell to the lowest in more than a year, according to a survey.

China, the engine of global growth, is caught in deep trouble, given falling consumer prices, a deepening real estate crisis, slumping exports and a record-high youth unemployment rate. However, the latest data on upbeat retail sales and industrial production suggests that the economy picked up steam last month, easing concerns about growth in the world’s second-largest economy.

ETFs in Focus

We have profiled the abovementioned ETFs in detail below:

Credit Suisse S&P MLP ETN (MLPO) – Up 48%

Amid volatility in the stock market, this overlooked corner is making great strides. MLPs have relatively consistent cash flows, making them less risky than the other plays in the broader energy space. These represent an attractive investment option for income-focused investors as MLPs pay out substantially all their income to investors on a regular basis. In addition to high yields and the potential for capital appreciation, MLPs also have lower volatility and provide diversification benefits to the portfolio.

Credit Suisse S&P MLP 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. It is unpopular and illiquid in the MLP space, with AUM of $32 million and an average daily volume of nearly 5,000 shares. The note charges 95 bps in annual fees.

AdvisorShares Pure US Cannabis ETF (MSOS) – Up 45.9%

Marijuana stocks have been surging following a proposal by the Drug Enforcement Agency to reclassify cannabis as a substance with reduced risk, fueling anticipation of federal legalization. The news has led to huge optimism across the marijuana industry. AdvisorShares Pure US Cannabis ETF is the first actively managed U.S.-listed ETF with dedicated cannabis exposure, focusing exclusively on U.S. companies, including multi-state operators. It holds 28 securities in its basket with a double-digit concentration on the top four firms.

AdvisorShares Pure US Cannabis ETF has amassed $602.4 million in its asset base while trading in an average daily volume of $6 million shares. It charges 80 bps in annual fees.

Sprott Junior Uranium Miners ETF (URNJ) – Up 15.8%

Uranium price has been witnessing a significant surge, driven by an upbeat demand forecast and lingering supply concerns amid the chances of sanctions affecting Russia’s nuclear fuel supply. Interest in nuclear power is also on the rise, presenting a promising opportunity for investors who anticipate global concerns about climate change to drive increased demand for this energy source. Sprott Junior Uranium Miners ETF is the only pure-play ETF focused on small uranium miners, selected for their potential for significant revenue and asset growth.

Sprott Junior Uranium Miners ETF is focused on the Nasdaq Sprott Junior Uranium Miners Index, which is designed to track the performance of mid-, small- and micro-cap companies in uranium-mining-related businesses. It holds 29 stocks in its basket and charges 80 bps in annual fees. Sprott Junior Uranium Miners ETF has accumulated $84.6 million in its asset base and trades in an average daily volume of 113,000 shares.

SPDR S&P Oil & Gas Equipment & Services ETF (XES) – Up 31.5%

The energy sector made a solid comeback in the third quarter on a recovery in oil prices on tightening supply conditions and the prospect of higher demand. The global oil market is expected to face the biggest deficit in over a decade. World oil demand is scaling record highs. SPDR S&P Oil & Gas Equipment & Services ETF tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry. It holds 31 stocks in its basket with AUM of $428.4 million.

SPDR S&P Oil & Gas Equipment & Services ETF charges 35 bps in fees per year from investors and trades in an average daily volume of 117,000 shares. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Defiance Pure Electric Vehicle ETF (EVXX) – Up 22.3%

The electric vehicles market is experiencing a boom, with global leaders wanting millions of them on the roads in the next decade. The sector is expected to expand at a compound annual growth rate (CAGR) of 15.9% between 2023 and 2035, according to a new report from data and analytics company GlobalData.

Defiance Pure Electric Vehicle ETF is an actively managed fund that seeks to track the performance of a basket of common shares, which are equally weighted on a quarterly basis, of the five largest (by market capitalization) electric vehicle manufacturers included in the Solactive Pure US Electric Vehicle Index. It charges 68 bps in annual fees and trades in a light volume of 10,000 shares. Defiance Pure Electric Vehicle ETF debuted in the space in June and has accumulated $5.2 million since then.
SPDR S&P Oil & Gas Equipment & Services ETF (XES): ETF Research Reports

Credit Suisse S&P MLP Index ETN (MLPO): ETF Research Reports

AdvisorShares Pure US Cannabis ETF (MSOS): ETF Research Reports

Sprott Junior Uranium Miners ETF (URNJ): ETF Research Reports

Defiance Pure Electric Vehicle ETF (EVXX): ETF Research Reports

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