U.S. Stocks Near Record High: Top-Ranked ETFs to Buy

Amid volatile trading in recent weeks, the decade-old U.S. bull is still raging, with the major stock indices near all-time highs. The Dow Jones Industrial Average is just 1% shy of its Oct 3 closing peak while the S&P 500 is within 1% of its all-time closing high. The Nasdaq Composite Index is 1.4% away from the all-time high.

The renewed optimism came from easing recession fears following rounds of upbeat economic data and enthusiasm over trade deal. Additionally, Q1 earnings are coming in better than expected with improving outlook. Earnings from about 15.4% of the total market cap in the S&P 500 Index that has reported results are up barely 0.2% on 2.5% higher revenues. While the growth is much lower than the earnings and revenue improvement of 13.9% and 5.4%, respectively, for the same group of companies in the preceding quarter, it is much better than what many had feared (read: 5 Top-Ranked ETFs & Stocks to Bloom in Spring).

Moreover, the breadth of the market — the number of companies climbing rather than falling to rent peaks or troughs — has been improving, as measured by the Value Line Geometric Index. The measure is still about 7.6% below from its all-time high hit on Aug 29, but was up about 23% since its late-December low. This metric also supports the bull thesis.

The encouraging trends have rekindled the appeal for riskier assets, especially the cyclical stocks that tend to outperform during periods of healthy economic growth. Below, we have highlighted five ETFs from the cyclical sectors that have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead.

Consumer Discretionary Select Sector SPDR Fund XLY

This is the largest and the most-popular product in the consumer discretionary space with AUM of $13.3 billion and average daily volume of around 6.4 million shares. It tracks the Consumer Discretionary Select Sector Index and holds 64 securities with higher concentration on the top firm — Amazon AMZN — at 23.9%. Other firms make up for a nice mix with each holding no more than 10.1% of the assets. From a sector look, Internet & direct marketing retail takes the top spot with 29.6% of assets, followed by specialty retail (25.8%), hotels restaurants & leisure (19.8%) and textiles apparel & luxury goods (8.4%). The fund charges 13 bps in fees per year and has a Zacks ETF Rank #2 (read: Consumer ETFs: Bull Market Winners With Room to Run in 2019).

Invesco Dynamic Software ETF PSJ

With AUM of $399.4 million, this ETF provides exposure to software segments of the broader U.S. technology space by tracking the Dynamic Software Intellidex Index. It holds 30 stocks in its basket with each accounting for less than 5.5% share. It charges 63 bps in annual fees and trades in average daily volume of 40,000 shares. The product has a Zacks ETF Rank #1.

Communication Services Select Sector SPDR Fund XLC

This ETF tracks the communication services sector of the S&P 500 Index and has accumulated $5.7 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with heavy concentration on the top three firms. Other firms hold no more than 6% of assets. About 46.9% of the portfolio is allocated to interactive media & services while entertainment and media round off the next two spots. The product charges 13 bps in annual fees and trades in an average daily volume of 3.5 million shares. It has a Zacks ETF Rank #1.

iShares U.S. Regional Banks ETF IAT

This ETF offers exposure to 58 small and mid-cap regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. It is largely concentrated on the top two firms with double-digit exposure each while other firms hold no more than 7% share. The fund has amassed $540.7 million in its asset base while sees a good volume of 369,000 shares a day. It charges 43 bps in annual fees and has a Zacks ETF Rank #2 with a High risk outlook (read: Invest Like Warren Buffet With These Bank ETFs).

Vanguard Industrials ETF VIS

This fund offers exposure to the industrial sector and follows the MSCI US IMI Industrials 25/50 Index. It holds about 347 securities in its basket with none accounting for more than 7.10% of the assets. From an industrial look, aerospace and defense takes the top spot at 23.3% followed by industrial conglomerates at 12.7%. The fund manages $3.6 billion in its asset base and charges 10 bps in annual fees. Volume is moderate as the product exchanges 193,000 shares a day on average. VIS has a Zacks ETF Rank #1.

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