Best Sector ETFs For Q3

by: Zacks Funds

With the Q2 earnings season in full throttle, broader U.S. indices in the bull territory and global market worries still in place thanks to Brexit, investors might be interested in knowing the best sector picks at the current level.

To add to this, the Fed is still being dovish this year after the liftoff in December, but may tighten policies ahead if the U.S. economy continues to gain momentum. However, the Fed noted that the present U.S. economic recovery is modest, and that it will closely follow the impact of Brexit on the global economy before hurrying up on further rate hikes. To put a long story short, speculation over the next Fed hike will continue to baffle investors.

We also have the presidential election in November, which may leave a huge impact on market sentiments. Against this backdrop, we highlight three lucrative sectors (as per the Zacks Market Strategy issued on July 14, 2016) and the related ETFs. These could also be used to book some profits in the present edgy scenario, threatened by global issues and ambiguity over the rate hike timeline at home.

Each offer is intriguing enough to fight any sudden emergence of negative economic news as these sector choices are based on the Zacks Ranking System.


Healthcare has been a subdued segment so far this year, being caught in a web of issues. While Democratic Presidential Candidate Hillary Clinton's allegations on "price gouging" hit the pharma stocks, overvaluation concerns wrecked havoc on biotech ETFs.

However, after such steep sell-offs, especially in the biotech space, the space seems to have returned to reasonable valuation. Plus, several mergers & acquisitions and the Affordable Care Act are to drive the sector ahead.

Also, as per the Zacks Market Strategy, Healthcare was among the sectors which have generated considerable free cash flows. If this was not enough, the broader healthcare space is known to be defensive in nature, protecting from downside risks.

The John Hancock Multifactor Healthcare ETF (NYSEARCA:JHMH), the SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH) and the BioShares Biotechnology Clinical Trials ETF (NASDAQ:BBC) are some of the good choices in the space.


This is yet another high-potential area for investors who are eyeing near-term gains. Within the broader tech space, semiconductors, the value-centric traditional tech area, is taking an upper hand in the still edgy investing backdrop. This tech sub-sector might see gains ahead on demand for its products in emerging technology applications like tablets and smartphones despite still-subdued PC shipments.

Though the world semiconductor market will see a year-over-year decline of 2.4% in 2016, it is likely to enter into the growth territory in 2017 and 2018, as per World Semiconductor Trade (WSTS).

The SPDR S&P Semiconductor ETF (NYSEARCA:XSD), the PowerShares Dynamic Semiconductors Portfolio ETF (NYSEARCA:PSI) and the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) can prove to be good choices.

Consumer Staples

The consumer staples sector has been an area to watch lately. It acts a defensive sector and can offer a great deal of protection to your portfolio in a wild market. Additionally, still cheaper energy prices, stepped-up economic activities, a recovering housing market and a decent labor market - as indicated by the recent data - are making the consumer segment a great place to stay invested in.

The PowerShares S&P SmallCap Consumer Staples Portfolio ETF (NASDAQ:PSCC), the First Trust Consumer Staples AlphaDEX ETF (NYSEARCA:FXG) and the Vanguard Consumer Staples ETF (NYSEARCA:VDC) are some of the intriguing choices.

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