ETF Update: Materials, Semiconductors, Homebuilders

Building Up With Materials ETFs

When it comes to investing, ETFs make it easy to access specific sectors.

While some sectors have become beaten-down in recent months (hello, financials and homebuilders), others have been poster children for success, reports Roger Nusbaum for The Street. Materials and energy have been two areas that have demonstrated strong potential down the line, thanks to domestic and global demand for various commodities such as steel, oil, natural gas and more.

Among the ways to access these areas include:

• Materials Sector SPDR (XLB) is down 2.9% year-to-date, but it’s outperforming the S&P 500 by 11.3%.

• iShares S&P Global Materials Sector Index (MXI) is down 1.8% year-to-date, but could benefit down the line from its global outlook. The United States is 20.3% of the fund

• iShares Dow Jones Basic Materials (IYM) is up 2.7% year-to-date.

Selecting sectors is one of the key strategies in trend following, because as the current situation shows, while there are areas trending down for the time being, other areas are moving up. It’s just a matter of spotting them, but trust us - they’re there!

When choosing a sector, or an ETF to represent it, it is wise for investors to be aware of the current trends in the market that will help move or hinder that sector. This way, investors can move with any changes that are occurring.

These funds are currently below their 200-day moving averages, so you will want to hold off on considering them until they turn around.

Semiconductor ETFs Need the Consumer

Semiconductor ETFs have taken a beating along with the overall market downturn, but brighter days appear to be ahead.

Wednesday, Intel’s second-quarter profit jumped 25% on demand for laptop chips. The numbers handily beat Wall Street’s estimates, reports Jordan Robertson for the Associated Press. Intel (INTC) is the world’s largest supplier of microprocessors - the brains of personal computers.

Intel is getting help from the rising demand for laptop computers around the world, along with the processors that keep them running. Analysts feared that the company was going to be dinged by the U.S. economy.

That illustrates the point Billy Fisher for the Street makes in a recent article: the sector is reliant on consumers.

The industry had been feeling the effects of a global oversupply in the market for memory chips, and the Semiconductor Industry Association estimates that memory makes up only 20% of total semiconductor sales and says that otherwise, the industry is sound.

One technical strategist expressed optimism that the sector can deliver a market-beating performance in the second half of the year.

If Intel’s numbers are an indication, it doesn’t seem out of the question.

Among the semiconductor-centered ETFs that could benefit:

• PowerShares Dynamic Semiconductors (PSI): down 13.4% year-to-date; Intel is 4.9%
• Semiconductor HOLDRs (SMH): down 12.7% year-to-date; Intel is 21.4%
• SPDR S&P Semiconductor (XSD): down 16% year-to-date

Homebuilder ETFs Get a Lift From Reports, But the Numbers Are Skewed

Homebuilding ETFs were up sharply in trading yesterday morning after reports that single-family home construction fell while a new law in New York gave a boost to apartments buildings.

Single-family homebuilding lost 5.3% in June to its slowest pace in 17 years, reports Martin Crutsinger for the Associated Press. The last time it was this bad was in January 1991, when the country was in the middle of another housing downturn.

But construction of multifamily units soared a whopping 42.5% after a change in the New York City building codes kicked off a wave of apartment construction. It was enough to offset the losses, and together, single family and apartment home construction rose 9.1%.

But economists cautioned not to get too excited, as the total increase conceals the fact that we’re still in a slump.

Applications for building permits, which are considered a good sign of future activity, rose 11.6%. But that number also was skewed by the jump in the area of apartment construction. Overall, analysts think builders will continue to scale back on construction.

Homebuilder ETFs include:

• iShares Dow Jones US Home Construction (ITB), down 20.3% year-to-date
• SPDR S&P Homebuilders (XHB), down 17.5% year-to-date

Comments

[BOHICA]

I don't know any "sector rotation" practitioners who can beat the all-sectored S&P 500 over time. Would be interested in hearing all about some successful sector switchers because even the big name guys like Sam haven't beaten the market over any meaningful stretch.