Automotive
The U.S. automotive sector has been growing rapidly with full-year auto sales on track to hit 17 million, a record not seen in the last 15 years. Lead to a strong auto earnings growth of 8.7%
Investors could ride the earnings growth potential with a pure play – First Trust NASDAQ Global Auto ETF ((CARZ - ETF report)) – that provides global exposure to the 37 auto stocks by tracking the NASDAQ OMX Global Auto Index. It is a large cap centric fund and highly concentrated on the top 10 holdings with about 61.3% of assets, suggesting that company-specific risk is high and that the top 10 firms dominate the returns. Ford Motor (F - Analyst Report), Toyota Motor (TM -Analyst Report) and Daimler occupy the top three positions in the basket.
Transportation
The transport sector is expected to report earnings growth
of 7.7% year over year on 0.2% revenues for the second quarter. While a strong
dollar is eating away the profits of big transporters and has held the sector
back this year, a combination of other factors including better job conditions,
stepped-up economic activities, increasing consumer confidence and spending and
of course, cheap fuel will provide strength in the sector.
One way to play this trend is withiShares Dow Jones Transportation Average Fund ((IYT - ETF report)), which tracks the Dow Jones Transportation Average Index and holds 20 stocks in its basket (read: 3 ETFs to Add to Your Celebrations on July Fourth).
Medical/Health Care
Health care has been the highflying corner of the broader
U.S. market so far this year and the trend is likely to continue given the
M&A boom, strong earnings growth, cost-cutting efforts, aging
population, and Obamacare (read: Obamacare
is Here to Stay: 3 ETFs to Buy).
With attractive fundamentals, the sector is expected to report 6.9% earnings growth on 7% revenues on a year-over-year basis for the second quarter. The sector’s non-cyclical nature is an added advantage in the current environment, where concerns are spiking on global growth, stretched valuations, Greece crisis and uncertainty regarding rate hike. Investors could find the popular First Trust Health Care AlphaDEX Fund ((FXH - ETF report)) an exciting pick to benefit from the current trends. The fund follows an AlphaDEX methodology and ranks stocks in the space on various growth and value factors, eliminating the bottom ranked 25% of the stocks.
This approach results in a basket of 77 stocks with a
definite tilt toward the large caps at 51%. Each security holds less than 2.3%
of assets. Health care providers & services is the top sector with
45.3% allocation, followed by biotech (20.8%) and pharma (15.3%). This fund
manages about $4.1 billion in its asset base and trades in heavy volume of
around 336,000 shares. Expense ratio came in at 0.66% annually. The fund has
gained about 14% so far in the year and has a Zacks Rank of 1 or ‘Strong Buy’
rating with a Medium risk outlook.
