The month of August was solid for Wall Street driven by the dual tailwinds of solid corporate earnings and a booming economy. The Dow Jones and the S&P 500 notched their best performances for the month since 2014, climbing 2.1% and 3%, respectively, while the Nasdaq Composite logged its best August since 2000, with gains of 5.7%. Notably, the S&P 500 topped a new milestone of 2,900.
The impressive gains came despite the emerging market meltdown due to troubles in Turkey and Argentina. Also, trade war fears between the United States and China remained an overhang as both implemented the second round of tariffs on $16 billion of each other’s goods, effective Aug 23.
The rounds of upbeat data bolstered confidence in the economy leading to risk-on trade. This is especially true as America is witnessing the fastest pace of growth in nearly four years, with a nearly two-decade low unemployment rate of 3.9% and 18-year high consumer confidence. Historic tax cuts, higher government spending and deregulation are fueling growth.
Additionally, the Fed is on track for gradual rate hikes this year, citing that the economy is strong and can handle a tighter monetary policy. The central bank, which began to tighten monetary policy in 2015, has raised rates twice this year and is widely expected to do so again next month and in December.
A rising rate scenario also signals a strengthening economy, which is spurring growth in the stock market. Further, optimism over trade negotiations as well as a solid rebound in broad-based technology and Internet stocks buoyed up sentiments.
That said, a few sectors easily crushed the market in August. Below we have highlighted four sector ETFs that witnessed handsome gains last month and could be better plays in the months ahead should the trends prevail.
Sector ETFs That Beat the Market in August: ETFMG Alternative Harvest ETF (MJ)
The Cannabis-related ETF Alternative Harvest ETF (NYSEARCA:MJ) was on a tear last month driven by the surge in deal-making by marijuana stocks ahead of legalization of nationwide recreational use of cannabis in Canada on Oct 17.
A number of alcoholic beverage companies are showing interest in partnering with cannabis producers, with the latest being Diageo (DEO), which is in talks with three Canadian pot producers for buying a stake or forming a partnership to produce cannabis-infused beverages.
As such, MJ emerged as the biggest winner in August, gaining 25.1%. This is the first and only ETF targeting the cannabis/marijuana industry. It tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem, benefiting from global medicinal and recreational cannabis legalization initiatives.
The fund holds 40 securities in its basket with higher concentration on the top firms. Canadian firms make up 61% of the portfolio, while American firms comprise just 21%. The ETF has AUM of $468.1 million and trades in a good volume of around 264,000 shares. It charges 75 bps in annual fees.
Sector ETFs That Beat the Market in August: ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB)
Master limited partnerships (MLPs) are rising on robust drilling activity, strong earnings, and the new FERC (Federal Energy Regulatory Commission) ruling related to the treatment of income taxes for interstate natural gas pipeline operators that has offered them some relaxation.
While most of the MLP products surged, the Alerian MLP Infrastructure Index ETN Series B (NYSEARCA:MLPB) led the way higher, climbing 13.9%. It is an ETN option and tracks the performance of the Alerian MLP Infrastructure Index, which comprises 22 liquid, midstream energy infrastructure MLPs.
The note is extremely illiquid and unpopular with AUM of just $9.8 million and average daily volume of 100 shares. It charges 85 in bps in annual fees.
Sector ETFs That Beat the Market in August: ARK Genomic Revolution Multi-Sector ETF (ARKG)
The ARK Genomic Revolution Multi-Sector ETF (NYSEARCA:ARKG) is an actively managed ETF focusing on companies that are expected to benefit from extension and enhancement of the quality of human and other life by incorporating technological and scientific developments, improvements and advancements in genomics into their business.
The surge in demand for artificial intelligence in the advancement of diagnoses and treatment across the healthcare spectrum has been driving this ETFs higher. Per the fund’s fact sheet, the cost of sequencing the DNA of a full human genome should drop below $100 by 2022.
The fund holds 37 stocks in its basket with higher concentration on the top four firms. About one-fourth of the portfolio is allotted to gene therapy, closely followed by targeted therapeutics (16%), instrumentation (15.5%), beyond DNA (14.8%) and bioinformatics (11.3%).
The product has accumulated $306.7 million in its asset base and trades in average daily volume of 114,000 shares. It has 0.75% in expense ratio.
Sector ETFs That Beat the Market in August: SPDR S&P Internet ETF (XWEB)
Renewed interest in the tech sector was fueled by the Mexico trade deal and talks with Canada. Additionally, improving economic growth is providing a solid boost to economically sensitive growth sectors like technology, which typically perform well in a maturing economic cycle.
The SPDR S&P Internet ETF (NYSEARCA:XWEB) targets the Internet corner of the broad tech space. It tracks the S&P Internet Select Industry Index and holds 71 stocks in its basket with an equal-weight exposure of around 2%.
The fund has accumulated $53.8 million in its asset base and charges 35 bps in fees from investors. It trades in a light volume of around 10,000 shares a day on average and carries a Zacks ETF Rank #3 (Hold).
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