4 Sector ETFs That Beat The Market In Q4

We are fast approaching the end of 2019 and it’s been a stellar quarter so far for Wall Street. All three key equity gauges have hit record highs in the quarter. The key ETFs — (ASX:SPY) , (TSXV:DIA) and QQQ — have returned about 8.8%, 6.5% and 12.5%, respectively, so far this quarter.

Key events of this quarter that drove the markets were the announcement of a phase-one U.S.-China trade deal after almost two-years of wrangling, a deal on USMCA, extension of the OPEC output cut deal and the easing of Brexit uncertainty. Plus, global policy easing in the second half of the year has been an added boost.

Against this backdrop, below we highlight a few sector ETFs that have been the winners (per xtf.com) in the fourth quarter.

Biotech

Biotech stocks and ETFs have been going through the roof in the fourth quarter. Mergers and acquisitions, especially in the hot cancer treatment space, positive drug data, FDA approvals, upbeat financials and decent valuations are making the space a clear winner. As a result, Virtus LifeSci Biotech Clinical Trials ETF (ASX:BBC) is up as much as 66.5% this quarter, thus being the best ETF of the quarter so far (read: Why Biotech ETFs are Surging to New Highs).

Other biotech and pharma funds that have joined the rally include ALPS Medical Breakthroughs ETF (SI:SBIO) (up 38.6%), SPDR S&P Pharmaceuticals (NYSE:XPH) ETF (HN:XPH) (up 30.9%) and Global X Genomics & Biotechnology ETF GNOM (up 30.8%).

Silver Mining

Silver prices have recovered of late thanks to some safe-haven demand as well as uptick in global manufacturing activity.Per Federal Reserve’s recently released data, the manufacturing sector, which accounts for 11% of the U.S. economy, witnessed a 1.1% rise in output in November against the downwardly revised decline of 0.7% in October.

China’s data also sparked confidence as Caixin/Markit manufacturing Purchasing Managers’ Index showed more-than-expected expansion in the manufacturing activity. As silver is used in a wide range of industrial applications, the demand for the metal should be high. Silver miners’ ETFs have gained considerably this quarter with ETFMG Prime Junior Silver ETF (TSX:SIL) up 29.4% and Global X Silver Miners ETF (TSX:SIL) up 16.8%.

Semiconductor

This sector is one of the best beneficiaries of the announcement of the phase-one U.S.-China trade deal. Apart from the trade deal, a 5G boom and rising consumer spending on technology have propelled the sector. Expectations of higher smartphone sales have given an added boost. IDC expects the smartphone market to record 1.5% growth in 2020, after three straight years of global contraction.

Per Morgan Stanley (NYSE:MS) equity strategists, “semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” and are exposed to maximum risks on rising trade tensions. This easing in trade tensions bode well for semiconductor ETFs.

VanEck Vectors Semiconductor ETF SMH (up 21.3%), iShares PHLX Semiconductor ETF SOXX (up 20.3%) and SPDR S&P Semiconductor (NYSE:XSD) ETF XSD (up 18.9%) have proven to be the clear winners.

Oil & Gas Services

Oil & gas services corner of the broader energy sector has been a winning one in the fourth quarter. The fresh OPEC output cut deal which “deepens supply cuts by 500,000 barrels a day” through the end of the first quarter of next year is likely to keep boosting oil prices and must have boosted oil services stocks. Expectations of a recovery in oil prices next year strengthens hopes for better capital spending by upstream companies. This in turn should benefit the oil services stocks as thesecompanies generate their revenues from producers, or the upstream companies.

Invesco Dynamic Oil & Gas Services ETF PXJ (up 17.7%) andiShares U.S. Oil Equipment & Services ETF IEZ (up 17.2%)are some of the best-performing ETFs in this segment.

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