ETFs In Focus As Service Sector Activity Hits 12-Year High

Service activity in the United States accelerated in September, as represented by the Institute for Supply Management’s (ISM) non-manufacturing index.

The ISM non-manufacturing index came up with a reading of 59.8 in September 2017 compared with 55.3 in August. This was above economists’ expectations of a reading of 55.5 for September. A reading above 50 indicates expansion.

Why Are Stocks Rallying?

The impressive data alleviated fears of investors concerned about the impact of the two major hurricanes on economic growth and led to an increase in Treasury yields. Moreover, investors are optimistic about economic growth owing to the fundamentals of the economy and developments in President Donald Trump’s tax plan (read: Treasury ETFs Weaken in the Wake of Tax Talk and Fed Chief Rumors).

Moreover, this news comes days after ISM reported strong gains in the manufacturing sector. ISM manufacturing activity hit a 13-year high of 60.8 in September from 58.8 in August (read: 5 ETFs to Buy on 13-Year High Manufacturing Activity).

Stoking the rally, United States Secretary of State Rex Tillerson denied reports of him considering resigning from the Trump administration. Investors were concerned about the impact of another key person’s departure from the administration on Trump’s campaign promises that have led to an unthinkable rally in the markets.

The new orders index increased to 63 in September from 57 in August. Moreover, there was an increase in the ISM employment sub-index, as it surged to 56.8 in September compared with 56.2 in the previous month.

Moreover, the economy seems to be in good shape. In its final assessment of GDP in Q2, the commerce department updated the GDP growth figure to 3.1%, a two-year high.

Let us now discuss a few ETFs focused on providing exposure to U.S. equities.

SPDR S&P 500 ETF (NYSE:SPY) (AX:SPY)

This fund is the most popular ETF traded in the U.S. markets. It seeks to provide exposure to the largest and most-stable companies and tracks the S&P 500 index.

It has AUM of $244.3 billion and charges a fee of 9 basis points a year. From a sector look, the fund has high exposure to Information Technology, Financials and Health Care with 23.2%, 14.7% and 14.6% allocation, respectively (as of Oct 3, 2017). The fund’s top three holdings are Apple Inc (NASDAQ:AAPL) , Microsoft Corporation (NASDAQ:MSFT) and Facebook Inc (NASDAQ:FB) with 3.7%, 2.6% and 1.9% allocation, respectively (as of Oct 3, 2017). The fund has returned 17.3% in a year and 13.3% year to date (as of Oct 4, 2017). It currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares Core S&P 500 ETF IVV

This fund is a low-cost ETF that seeks to provide exposure to large, established U.S. companies and tracks the S&P 500 index.

It has AUM of $128.0 billion and charges a fee of 4 basis points a year. From a sector look, the fund has high exposures to Information Technology, Financials and Health Care with 23.1%, 14.7% and 14.5% allocation, respectively (as of Oct 3, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation and Facebook Inc with 3.7%, 2.6% and 1.9% allocation, respectively (as of Oct 3, 2017). The fund has returned 17.4% in a year and 13.3% year to date (as of Oct 4, 2017). It currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

PowerShares QQQ ETF QQQ

This fund is a popular ETF that maintains a hefty exposure to U.S. tech companies and tracks the Nasdaq 100 index.

It has AUM of $52.2 billion and charges a fee of 20 basis points a year. From a sector look, the fund has high exposures to Information Technology, Consumer Discretionary and Health Care with 59.2%, 21.1% and 11.6% allocation, respectively (as of Oct 3, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation, and Amazon.com Inc (NASDAQ:AMZN) with 11.6%, 8.4% and 6.7% allocation, respectively (as of Oct 3, 2017). The fund has returned 23.0% in a year and 23.3% year to date (as of Oct 4, 2017). It currently has a Zacks ETF Rank #2 with a Medium risk outlook.

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