5 Best-Performing Sector ETFs in Volatile August

After a turbulent start to August on the tech sell-off, Wall Street regained some momentum. However, it continued to witness wild swings throughout the month. The Dow Jones touched new highs for the third time this week, rising 2.4%, while the S&P 500 and Nasdaq Composite Index gained 2.7% and 1.9%, respectively.

While recession fears keep investors on edge in early month, bets over Fed rate cuts in September fuel optimism in the stock market in the latter part. We have highlighted five top-performing ETFs from different sectors that were the leaders in August. These are SPDR S&P Telecom ETF XTL, iShares MSCI Global Gold Miners ETF RING, First Trust Nasdaq Lux Digital Health Solutions ETF EKG, Reaves Utilities ETF UTES and Residential REIT ETF HAUS.

Federal Reserve Chair Jerome Powell signaled that interest rate cuts are coming in September, citing easing inflation and a weakening job market. U.S. annual inflation dipped below 3% annually in July for the first time since 2021, and the labor market cooled in July as the economy added 114,000 jobs, 35% fewer than expected. Unemployment rose to 4.3% — the highest since October 2021 — and represented the fourth consecutive monthly increase. U.S. manufacturing activity dropped to an eight-month low in July amid a slump in new orders.

At the Jackson Hole symposium last week, Powell said “the time has come” to lower borrowing costs in the light of a diminishing upside risk to inflation and moderating labor demand. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

The probability of a 25-bps rate cut stands at 69.5%, while that of a 50-bps cut is at 30.5%, according to the latest CME Group's FedWatch tool. Swap traders are pricing in about 100 basis points of easing this year, which implies a reduction at every remaining policy meeting through December, including one 50-bps cut (read: Rate Cut in the Cards? ETFs to Play).

Lower rates generally lead to reduced borrowing costs for mortgages, credit cards and other consumer and business loans. This helps businesses to expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and boosts the stock market. Lower rates primarily benefit cyclical sectors like industrials, financials and consumer discretionary. Securities in capital-intensive sectors like telecom will also benefit from lower rates as businesses will face lower loan rates over time.  

Additionally, lower rates raise the yellow metal’s attractiveness when interest rates fall compared to fixed-income assets such as bonds as the precious metal does not pay interest like fixed-income assets.

Let’s dig into the details of the abovementioned ETFs:
    
SPDR S&P Telecom ETF (XTL) – Up 11.1%

SPDR S&P Telecom ETF provides exposure to the telecommunications segment and follows the S&P Telecom Select Industry Index. It holds 39 stocks in its basket, with communications equipment making up 52% of the assets, while alternative carriers and integrated telecommunication services round off the next two spots with double-digit exposure each.

SPDR S&P Telecom ETF has amassed $86.6 million in its asset base and charges 35 bps in annual fees. It trades in a lower average daily volume of 10,000 shares and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 5 Sector ETFs That Outperformed With Double-Digit Gains in July).

iShares MSCI Global Gold Miners ETF (RING) – Up 9.5%

iShares MSCI Global Gold Miners ETF offers exposure to companies that derive the majority of their revenues from gold mining. It follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 35 securities in its portfolio. Canadian firms take more than half of the portfolio, while the United States takes the next spot at 23% share.

RING is the cheapest choice in the gold mining space, charging just 39 bps in fees and expenses. It has been able to manage assets worth $550.5 million and trades in a good volume of 182,000 shares per day (read: 5 Bullish ETF Ways to Play Gold Strength).

First Trust Nasdaq Lux Digital Health Solutions ETF (EKG) – Up 9%

First Trust Nasdaq Lux Digital Health Solutions ETF offers exposure to 44 companies that are primarily engaged in and involved at the intersection of healthcare and technology ("Digital Health Companies"). It follows the Nasdaq Lux Health Tech Index with key holdings in medical equipment and services, health care providers, and the pharmaceuticals and biotechnology industry.

First Trust Nasdaq Lux Digital Health Solutions ETF has accumulated $2.5 million in its asset base and trades in a volume of around 6,000 shares a day on average. It charges 65 bps in annual fees.

Reaves Utilities ETF (UTES) – Up 8.8%

Reaves Utilities ETF is the only actively managed ETF that seeks to provide returns through a combination of capital appreciation and income, primarily through investments in utility stocks. It holds 21 stocks with a heavy concentration on the top three firms.

UTES has AUM of $130.4 million and average daily volume of 33,000 shares. It charges 49 bps in annual fees (read: How AI Power Demand is Boosting Utility ETFs).

Residential REIT ETF (HAUS) – Up 7.7%

Residential REIT ETF is actively managed and the only ETF with an active pure-play U.S. residential real estate strategy. It invests in publicly traded REITs that derive their revenues from ownership and/or management of residential properties and holds 24 stocks in its basket.

Residential REIT ETF has AUM of $6.1 million and charges 60 bps in fees per year from investors. It trades in an average daily volume of 5,000 shares.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research