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Wall Street has been enjoying a strong rally this year, with the three major indices touching a series of record highs. The S&P 500 and the Dow Jones ended the last day of the first nine months at a fresh record high, gaining 20.8% and 12.3%, respectively. The Nasdaq Composite Index has risen 21.2%.
The artificial intelligence (AI) craze and rate-cut optimism have been the major driving factors amid recession fears, geopolitical tensions and the sell-off in tech stocks that weighed on investors’ confidence.
The gains were broad-based and well spread out across various segments. Some of the top performers in the ETF space from different corners of the market include Reaves Utilities ETF (UTES - Free Report) , Roundhill Magnificent Seven ETF (MAGS - Free Report) , Themes Gold Miners ETF (AUMI - Free Report) , VanEck Vectors Video Gaming and eSports ETF (ESPO - Free Report) and SPDR S&P Homebuilders ETF (XHB - Free Report) .
The technology sector was the outperformer in the first half but rate-cut optimism led to sector rotation in the third quarter. Investors shunned hot technology stocks in favor of smaller companies and the cyclical sectors, which are bigger beneficiaries of Fed rate cuts (read: 5 Sector ETFs Scaling New Highs on Fed Rate Cuts).
After all the speculation, Federal Reserve Chair Jerome Powell finally kicked off the new rate cycle era by initiating a 50 basis points cut in interest rates last week after holding it at a 23-year high for 14 consecutive months since July 2023. This marked the first rate cut since 2020 to address slowing economic growth and showed greater confidence in the fact that inflation is moving sustainably toward the 2% target level.
Lower rates reduce borrowing costs for mortgages, credit cards and other consumer and business loans. These help businesses expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and boosts the stock market.
ETFs in Focus
We have profiled the abovementioned ETFs in detail below:
The utility sector has gained immense investor attraction as a new emerging AI play, especially after technology lost momentum on overvaluation concerns. It is one of the biggest beneficiaries of a rate cut as these offer higher returns due to their outsized yields. Further, stock market volatility has raised the appeal for utility stocks as a defensive investment or safe haven amid economic or political turmoil. Reaves Utilities ETF is the only actively managed ETF that seeks to provide returns through a combination of capital appreciation and income, primarily through investments in utility stocks. It holds 17 stocks with a heavy concentration on the top three firms.
As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low. The rapid adoption of artificial intelligence (AI) is fueling growth in the sector. The expansion of AI applications holds the promise of ushering in fresh growth opportunities within the sector. Roundhill Magnificent Seven ETF is the first-ever ETF that offers investors equal-weight exposure to the “Magnificent Seven” stocks.
It has amassed $95.4 million in its asset base and charges 29 bps in fees per year. MAGS trades in an average daily volume of 662,000 shares.
Gold has been on a solid run this year, outperforming the broader market index. Fed rate cuts, recession fears and geopolitical tensions in the Middle East also drove the price higher. Lower rates raise the yellow metal’s attractiveness compared to fixed-income assets such as bonds. Gold is often used as a means of preserving wealth during times of financial and political uncertainty and usually does well when other asset classes struggle. Themes Gold Miners ETF seeks to track the Solactive Global Pure Gold Miners Index, which identifies the largest 30 companies by market capitalization deriving their revenues from gold mining (read: Gold Mining ETFs Soar on Record Bullion Price).
It holds 24 stocks in its basket, with Canadian firms accounting for 51%, followed by Australian firms with a 30.3% share. Themes Gold Miners ETF has accumulated $2.3 million in its asset base. It charges 35 bps in fees per year and trades in a lower average daily volume of 1,000 shares.
VanEck Vectors Video Gaming and eSports ETF (ESPO - Free Report) – Up 34.1%
With the Fed easing era and hopes of China's economy rebounding on economic stimulus, video game and eSports segments have got a boost. VanEck Video Gaming and eSports ETF offers exposure to global companies involved in video game development, e-sports and related hardware and software by tracking the MVIS Global Video Gaming and eSports Index. ESPO holds 28 stocks in its basket, with a moderate concentration on the top firms. VanEck Video Gaming and eSports ETF is tilted toward American firms, which account for 37.3% of the portfolio, while Japan and China round off the next two, with double-digit allocation each.
VanEck Video Gaming and eSports ETF has gathered $258.1 million in its asset base and trades in an average daily volume of 19,000 shares. ESPO charges 56 bps in annual fees from investors.
U.S. homebuilders performed well, driven by falling mortgage rates and the Fed rate cut optimism. Lower mortgage rates have led to increased housing market activity, leading to a rise in ETFs. SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket.
SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space, with AUM of $2.3 billion and an average daily volume of 20,000 shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.
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Best Sector ETFs of the First Nine Months
Wall Street has been enjoying a strong rally this year, with the three major indices touching a series of record highs. The S&P 500 and the Dow Jones ended the last day of the first nine months at a fresh record high, gaining 20.8% and 12.3%, respectively. The Nasdaq Composite Index has risen 21.2%.
The artificial intelligence (AI) craze and rate-cut optimism have been the major driving factors amid recession fears, geopolitical tensions and the sell-off in tech stocks that weighed on investors’ confidence.
The gains were broad-based and well spread out across various segments. Some of the top performers in the ETF space from different corners of the market include Reaves Utilities ETF (UTES - Free Report) , Roundhill Magnificent Seven ETF (MAGS - Free Report) , Themes Gold Miners ETF (AUMI - Free Report) , VanEck Vectors Video Gaming and eSports ETF (ESPO - Free Report) and SPDR S&P Homebuilders ETF (XHB - Free Report) .
The technology sector was the outperformer in the first half but rate-cut optimism led to sector rotation in the third quarter. Investors shunned hot technology stocks in favor of smaller companies and the cyclical sectors, which are bigger beneficiaries of Fed rate cuts (read: 5 Sector ETFs Scaling New Highs on Fed Rate Cuts).
After all the speculation, Federal Reserve Chair Jerome Powell finally kicked off the new rate cycle era by initiating a 50 basis points cut in interest rates last week after holding it at a 23-year high for 14 consecutive months since July 2023. This marked the first rate cut since 2020 to address slowing economic growth and showed greater confidence in the fact that inflation is moving sustainably toward the 2% target level.
Lower rates reduce borrowing costs for mortgages, credit cards and other consumer and business loans. These help businesses expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and boosts the stock market.
ETFs in Focus
We have profiled the abovementioned ETFs in detail below:
Reaves Utilities ETF (UTES - Free Report) – Up 45.2%
The utility sector has gained immense investor attraction as a new emerging AI play, especially after technology lost momentum on overvaluation concerns. It is one of the biggest beneficiaries of a rate cut as these offer higher returns due to their outsized yields. Further, stock market volatility has raised the appeal for utility stocks as a defensive investment or safe haven amid economic or political turmoil. Reaves Utilities ETF is the only actively managed ETF that seeks to provide returns through a combination of capital appreciation and income, primarily through investments in utility stocks. It holds 17 stocks with a heavy concentration on the top three firms.
UTES has AUM of $192.1 million and trades in an average daily volume of 42,000 shares. It charges 49 bps in annual fees (read: 5 ETFs Up More Than 35% in the First Nine Months).
Roundhill Magnificent Seven ETF (MAGS - Free Report) – Up 42.5%
As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low. The rapid adoption of artificial intelligence (AI) is fueling growth in the sector. The expansion of AI applications holds the promise of ushering in fresh growth opportunities within the sector. Roundhill Magnificent Seven ETF is the first-ever ETF that offers investors equal-weight exposure to the “Magnificent Seven” stocks.
It has amassed $95.4 million in its asset base and charges 29 bps in fees per year. MAGS trades in an average daily volume of 662,000 shares.
Themes Gold Miners ETF (AUMI - Free Report) – Up 36.6%
Gold has been on a solid run this year, outperforming the broader market index. Fed rate cuts, recession fears and geopolitical tensions in the Middle East also drove the price higher. Lower rates raise the yellow metal’s attractiveness compared to fixed-income assets such as bonds. Gold is often used as a means of preserving wealth during times of financial and political uncertainty and usually does well when other asset classes struggle. Themes Gold Miners ETF seeks to track the Solactive Global Pure Gold Miners Index, which identifies the largest 30 companies by market capitalization deriving their revenues from gold mining (read: Gold Mining ETFs Soar on Record Bullion Price).
It holds 24 stocks in its basket, with Canadian firms accounting for 51%, followed by Australian firms with a 30.3% share. Themes Gold Miners ETF has accumulated $2.3 million in its asset base. It charges 35 bps in fees per year and trades in a lower average daily volume of 1,000 shares.
VanEck Vectors Video Gaming and eSports ETF (ESPO - Free Report) – Up 34.1%
With the Fed easing era and hopes of China's economy rebounding on economic stimulus, video game and eSports segments have got a boost. VanEck Video Gaming and eSports ETF offers exposure to global companies involved in video game development, e-sports and related hardware and software by tracking the MVIS Global Video Gaming and eSports Index. ESPO holds 28 stocks in its basket, with a moderate concentration on the top firms. VanEck Video Gaming and eSports ETF is tilted toward American firms, which account for 37.3% of the portfolio, while Japan and China round off the next two, with double-digit allocation each.
VanEck Video Gaming and eSports ETF has gathered $258.1 million in its asset base and trades in an average daily volume of 19,000 shares. ESPO charges 56 bps in annual fees from investors.
SPDR S&P Homebuilders ETF (XHB - Free Report) – Up 30.7%
U.S. homebuilders performed well, driven by falling mortgage rates and the Fed rate cut optimism. Lower mortgage rates have led to increased housing market activity, leading to a rise in ETFs. SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket.
SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space, with AUM of $2.3 billion and an average daily volume of 20,000 shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.