3 ETFs Breaking Away From the Pack

by Chris Johnson | August 6, 2012 2:09 pm

Consider the following: Since peaking in April, the S&P 500 has done a lot of traveling — actually, about 290 points’ worth, or about 20% of its current value.

And while a lot of that movement was the well-publicized drop that sent the market into its June depths, you might be surprised to learn that the S&P has battled against the dog days of summer and is approaching 12-month highs again.

However, as the S&P 500 nears those peaks, we’re taking a look at the companies in the benchmark sector that also are breaking to new 12-month highs … and we don’t really like what we see.

As of Friday, only 72 of the S&P 500 companies (14%) were breaking to new 12-month highs as the index itself presses near its own 12-month zenith. From our perspective, the lack of companies making new highs in the S&P 500 when the index itself is cresting itself shows that the breadth behind the current rally might be questionable; we would rather see a majority of these companies breaking higher.

This begs the question: “Which sectors are positioned as better breakout leaders?” For the answer to that question, we direct your attention to our unique ETF New High Analysis data.

The table below displays the widely traded ETFs as ranked by their respective percentage of stocks making new 12-month highs. Right out of the gate, the top three ETFs have roughly double the percentage of component companies breaking out to new 12-month highs, indicating a much stronger move among these ETFs.

ETFChart 3 ETFs Breaking Away From the Pack

For those investors looking for the real breakout candidates in the market, these three are worth more than a look:

Utilities

First on the list, the Select Sector Utilities SPDR (NYSE:XLU[1]) should come as no surprise as investors clearly have favored utility stocks amid increased volatility. XLU shares have returned only 5.2% year-to-date versus the 10.6% returns offered by the S&P 500. Looking out further, though, the same shares have outperformed the S&P 500 over the last calendar year, maintaining a healthy low-volatility trend higher.

In addition to the consistent trend higher, the XLU shares provide a dividend yield of 6.7% — a trait that looks extremely attractive to yield hunters.

Consumer Staples

No. 2 on the list is the Select Sector Consumer Staples SPDR (NYSE:XLP[2]). In similar fashion, the consumer staples companies like Proctor & Gamble (NYSE:PG[3]), Clorox (NYSE:CLX[4]) and Altria (NYSE:MO[5]) have been pulling in investors. For the past 52 weeks, the XLP shares have returned 21% against the S&P 500’s 16%.

Again, yields come into play, with XLP shares spinning off a 2.6% dividend as well as a low volatility trend higher. This ETF will remain in play as long as the uncertainty surrounding the global economies continues.

Real Estate

Finally, the third breakout ETF potentially holds the best opportunities for those investors looking to straddle the changing economic environment.

Housing and real estate stocks have been on the move as some investors have tried to position themselves for an eventual recovery in the economy. The iShares Dow Jones Real Estate ETF (NYSE:IYR[6]) offers the growth potential of being early to the real estate sector, along with a relatively high dividend yield that might be attracting more defensively minded investors. IYR shares have led the market higher by returning 20% over the last calendar year with the help of robust performance from its constituent holdings.

Notable here also is the difference in the performance of the homebuilder ETF, ranked near the lowest on this breakout list.

For short-term investors, the homebuilders — via the SPDR S&P Homebuilders ETF (NYSE:XHB[7]) — have presented themselves as a potentially attractive trade, as the homebuilder companies are slingshotting past the rest of the market by gaining more than 15% during the past three months thanks to a number of positive headlines. More adventurous traders will consider this a more attractive position given its higher risk/reward scenario as the negative sentiment continues to unwind.

As of this writing, Chris Johnson did not hold a position in any of the aforementioned securities.

Endnotes:
  1. XLU: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLU
  2. XLP: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLP
  3. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  4. CLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=CLX
  5. MO: http://studio-5.financialcontent.com/investplace/quote?Symbol=MO
  6. IYR: http://studio-5.financialcontent.com/investplace/quote?Symbol=IYR
  7. XHB: http://studio-5.financialcontent.com/investplace/quote?Symbol=XHB

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