Top And Flop Sector ETFs Of Q3

The broader market was pretty eventful in the third quarter. While geopolitical and political concerns were rife, those threats couldn’t weigh on the equity market returns. Upbeat Q2 GDP growth data for the U.S. economy, tax reform proposals and some upbeat economic releases trumped awful hurricanes, tensions with North Korea, Trump’s warnings of a Government shutdown and overvaluation concerns.

Against this backdrop, let’s discuss the ETF areas that emerged winners in the third quarter and those that were hit hard.

Gainers

Biotech

Biotech ETFs especially those with a focus on cancer therapy staged a great show in the quarter especially on Gilead’s (GILD) buyout announcement of the clinical-stage biopharmaceutical company Kite pharma (KITE), which is focused on the development and commercialization of cancer immunotherapy products (read: Biotech ETFs Soar on Gilead-Kite Deal).

Immune-oncology is expected to rule the next-era biotech trading. If this was not enough, on Aug 30, the US drug regulator approved Novartis’ Kymriah, a CAR-T cell therapy – which targets the body’s own immune system to fight cancer cells. All these led BioShares Biotechnology Clinical Trials (HM:BBC) and Loncar Cancer Immunotherapy ETF CNCR to add about 21.4% and 17.5%, respectively in the last three months (as of Sep 29).

Material

Copper price jumped to a 32-month high on bullish hedge fund bets. Deficit concerns are rising in copper investments. In early August, research house Jefferies indicated that prices may remain erratic in the near term and rise to $2.75/lb in 2018 and $3/lb in 2019 from the current $2.87/lb. Jefferies even sees the possibility of a $4/lb or above pricing in copper in the next five years.

Meanwhile, China's manufacturing activity growth also picked up. Since the country is the world’s biggest consumer of this industrial metal, making up roughly 40% of the global copper demand, the uptick in Chinese manufacturing bodes well for copper demand. All these benefited Global X Copper Miners ETF COPX, which was up 18.5% in the quarter (read: 3 Red Hot Base Metal ETFs).

Technology

The technology sector has been positioned strongly thanks to improving economic and industry fundamentals and Trump’s proposed corporate tax reform. Plus, an outstanding bitcoin rally was instrumental in benefiting semiconductor stocks, since mining of cryptocurrencies needs the usage of semiconductors. ARK Innovation ETF (KW:ARKK) and PowerShares Dynamic Semiconductors ETF (TO:PSI) jumped about 18.4% each in the third quarter (read: 5 Sector ETFs for Revenue Growth Play).

Losers

Agriculture

Agricultural ETFs lost ground in the quarter. Most of funds were in the red. Adverse demand-supply dynamics was probably responsible for this lackluster performance. Teucrium Wheat ETF WEAT, iPath Bloomberg Grains SubTR ETN JJG and iPath Bloomberg Livestock SubTR ETN COW (COW) lost about 16%, 10.6% and 9% respectively in thethird quarter (as of Sep 29, 2017).

Airlines

Airline stocks were hurt by back-to-back hurricanes – Irma and Harvey – in the third quarter. Harvey caused cancelations of more than 13,300 flights across Houston during a 12-day period stretching from Aug 25 through Sep 5, according to flight-tracking service FlightAware. The disturbance increased following Hurricane Irma as airlines cancelled flights in the Caribbean and offered waivers to passengers in Florida.

As per the policy, airlines ‘’permitted customers to make one change to their itineraries without paying change fees that can cost $200 or more per passenger.” Naturally, U.S. Global Jets ETF (KL:JETS) felt the pressure and lost about 6% in the third quarter (as of Sep 29, 2017) (read: Hurricane Irma: ETF Winners & Losers).

Restaurants

Restaurant stocks bore the brunt of the hurricanes. Analysts apprehended that restaurants may see considerable sales reduction and destruction due to Irma. A Canaccord analyst noted that some restaurants have considerable exposure to Florida.

Among these, Fiesta Restaurant Group Inc. FRGI (37% exposure), Ruth's Hospitality Group Inc. (NASDAQ:RUTH) (21% exposure), Bloomin' Brands (NASDAQ:BLMN) (19% focus), BJ's Restaurants (NASDAQ:BJRI) (12%), Darden Restaurants Inc. (NYSE:DRI) (11%), Ruby Tuesday Inc. (NYSE:RT) (10%) and Brinker International Inc. EAT (10%) have a double-digit focus.

Irma disaster happened just one week after Harvey weighed on the comps at restaurants with heavy presence in Texas. Understandably, USCF Restaurant Leaders Fund MENU was in trouble in the third quarter. The fund lost about 5.6% in the quarter.

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