An ETF is a conglomeration of companies that are typically organized by market cap, index, or industry. The idea is to group similar companies together that allows investors some opportunity to diversify based on a particular investment preference. Here’s a list of ETFs that are more focused and invest in areas that are may see big moves in the next week or two.
The trouble with many style ETFs is that they are dominated by the same handful of stocks that everyone can name. Many investors unwittingly invest in them anticipating some degree of diversification but find themselves concentrated in the same companies. This has contributed to the market’s reliance on these companies and has created some degree of stability, for now. However, at some point they will go down and many will find themselves losing significantly.
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Here’s a list of ETFs to watch next week because of their leadership, the potential for rotation and bullish option interest.
ETF to Watch #1: SPDR S&P Regional Banking ETF (NYSEARCA: KRE)
Financials were the second-best performing S&P 500 sector for the week behind Industrials. A key part of the financials are the banks that most of the lending nationally. Regional banks are more focused on lending as a primary part of their business and the moves by the government to increase spending and inflation typically helps the financial sector and especially regional banks. KRE finished the week particularly strong on Friday and was preceded by significant bullish option activity earlier in the week.
ETF to Watch #2: Industrial Select Sector SPDR Fund (NYSEARCA: XLI)
Industrials were the best performing S&P 500 sector last week. With the desire for stimulus and a likely infrastructure package, it puts this sector in the driver’s seat if the spending goes out. Also, President Trump’s effort to streamline approvals will mean that the projects can get started quickly.
ETF to Watch #3: Harvest CSI 300 China A-Shares ETF (NYSEARCA: ASHR)
Chinese companies lost value on Friday after starting the week very strongly on Monday. These companies will benefit by the U.S. dollar weakening and Chinese stimulus of their markets. Certainly the news on TikTok doesn’t make this a sure-fire winner, but there’s a chance that the stimulus spending may send these companies higher.
ETF to Watch #4: Utilities Select Sector SPDR Fund (NYSEARCA: XLU)
One relationship to key off for broader market strength is whether the Utilities sector is leading the S&P 500. There’s been studies that have shown higher risk-adjusted returns investing in Utilities over the S&P 500 index funds when Utilities outperforms over a 4-week rolling basis. Utilities have outperformed for several weeks and next week will be a big one to see if it can maintain its outperformance over a 4-week rate of change.
ETF to Watch #5: VanEck Vectors Gaming ETF (NASDAQ: BJK)
It was a big week for gaming stocks this week and much of the movement began with increased bullish interest in their options. MGM Resorts (NYSE: MGM), Las Vegas Sands (NYSE: LVS) and Caesar’s Entertainment (NASDAQ: CZR) all had unusual bullish option activity on Thursday of last week.
ETF to Watch #6: Roundhill Sports Betting & iGaming ETF (NYSEARCA: BETZ)
BETZ is a new offering by Roundhill and features companies that are in sports betting and the iGaming industries. The fund holds foreign companies as well as US companies like DraftKings Inc (NASDAQ: DKNG) and Penn National Gaming (NASDAQ: PENN).
ETF to Watch #7: Invesco S&P 500® High Beta ETF (NYSEARCA: SPHB)
This ETF tracks companies in the S&P 500 that have the highest realized volatility in the S&P 500 over the past year. Many of the top holdings are companies that have high short interest. The performance has been lagging since June, but a continuation in the bullish move in the S&P 500 may accompany a short squeeze.
ETF to Watch #8: VanEck Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ)
Gold took a breather to end last week as the U.S. dollar regained some lost ground. However, there is a good chance that bulls will pick up these companies off the lows, especially if the dollar regains its weakness, particularly if stimulus talks pick back up and something is passed.