Debt Ceiling ETFs: A Different 'Gang of Six'

by: Gary Gordon

In the 7/12/11 feature, Bond ETFs Predict Debt Celing Will Be Raised, I demonstrated why there has been little reason to fret financial calamity. In essence, bond yields have neither surged nor “sold off” during the debt debate timeline. That fact alone has been supporting the notion that a deal would get done.

Although many still ponder the possibility that the Dems and Repubs will fail to meet the Treasury’s 8/2 deadline, I found myself pondering a different question. Specifically, which sectors have had the most success since President Obama became actively engaged in the negotiations with members of Congress?

As described in the earlier article, Obama became intimately involved in the “bipartisan process” on 6/27. Here is how a variety of stock assets have fared through 7/20:

“Gang of Six” Sectors During Debt Debate (6/27-7/20)
Approx %
Gold Miners
Junior Gold Miners (NYSEARCA:GDXJ) 19.1%
Market Vectors Gold Miners (NYSEARCA:GDX) 14.9%
Industrial Metal Miners
Global X Silver Miners (NYSEARCA:SIL) 23.0%
Global X Copper Miners (NYSEARCA:COPX) 14.1%
Oil/Gas Exploration
PowerShares Small Cap Energy (NASDAQ:PSCE) 16.8%
Oil Gas Exploration/Production (NYSEARCA:XOP) 16.2%
Oil/Gas Services
PowerShares Dynamic Oil Services (NYSEARCA:PXJ) 12.5%
Oil Gas Equip & Services (NYSEARCA:XES) 12.3%
PowerShares Nasdaq Internet (NASDAQ:PNQI) 7.5%
Internet HOLDRs (NYSE:HHH) 6.5%
SE Asia
iShares Thailand (NYSEARCA:THD) 13.6%
Market Vectors Indonesia (NYSEARCA:IDX) 7.5%
S&P 500 SPDR Trust (NYSEARCA:SPY) 3.7%

Noticing a number of clusters, I formed the “Gang of Six” sectors - each of which significantly out-hustled the broader market during the ”will-they-or-won’t-they” debate. In particular, gold mining success is likely tied to the record run for the underlying commodity during the heightened state of uncertainty.

That said, ”risk on” cyclical segments like energy, materials and Internet products/services revved up in the period. One might even be inclined to suggest that they’ve ignored double-dip housing concerns, debt woes across the developed world landscape, inflation throughout emerging countries as well as dreadful unemployment stateside.

One could give a nod to earnings. Indeed, corporations have handily trumped expectations. Equally plausible, however, is fund flow back into commodities. Whereas investors had yanked money throughout the second quarter, they’ve returned by the droves in July. The activity may have had a hand in boosting energy and materials exploration stocks.

And there’s yet another explanation. Stock market investors, much like bond market investors, have simply used the debt ceiling debate as an opportunity to buy the proverbial dips.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.