Top ETF Areas Of September

Wall Street posted a decent performance in September on easing of trade tensions and a Fed rate cut. Though Saudi oil attack and Trump impeachment made the market volatile for a while, overall the month was good for the markets.

SPDR S&P 500 ETF (NYSE:SPY) ( (ASX:SPY) ) (up 1%) and SPDR Dow Jones Industrial Average (NYSE:DIA) ETF ( (TSXV:DIA) ) (up 1.5%) have held up well in the month, whileInvesco QQQ Trust (QQQ) is down 0.2%.

That said, a few ETF areas have outperformed the market. Below we have highlighted four such areas that have raked in substantial gains in September (as of Sep 27, 2019).

Small Caps

A dovish Fed, lingering trade war tensions, global growth worries, geopolitical risks, compelling valuation and a decently growing U.S. economy have probably worked in favor of the pint-sized stocks.

Also, “small caps have more relative debt on their balance sheets. Small caps are stretched on debt to capital and net debt EBITA” per an article published on CNBC. If there is higher debt on the balance sheet, chances of low rates (which has been happening of late) should benefit smaller-cap stocks.

Invesco S&P SmallCap 600 Pure Value ETF (RZV) (up 14.6% per xtf.com), Invesco S&P SmallCap Materials ETF (PSCM) (up 12.1%), Invesco S&P SmallCap Value with Momentum ETF (XSVM) (up 12.1%) are some of the top-performing ETFs of September (read: Small-Cap ETFs Loved by Investors: Here's Why).

Bank

Bank ETFs rebounded in September after a prolonged underperformance caused by a flattening yield curve. Since banks borrow money at short-term rates and lend capital at long-term rates, steepening of the yield curve bodes well for bank ETFs.

Actually, the movement of short-term bonds is more dependent on Fed behavior than long-term bonds. The Fed has enacted a rate cut in September after a slash in July and may slash rates further this year, thanks to rising slowdown fears owing to U.S.-China trade tensions and global growth worries.

Meanwhile, reports of a meeting between the United States and China in October boosted risk-on sentiments, which in turn provided a boost to the broader market. This contributed to the rise in long-term bond yields in the month of September. This factor has benefited funds like Invesco KBW Bank ETF KBWB, First Trust Nasdaq Bank ETF FTXO and iShares U.S. Regional Banks ETF (LON:IAT) (read: Bank ETFs Benefit From Steepening Yield Curve, But How Long?).

Energy

Tensions in the Middle East have escalated in September on attacks on Saudi Arabia’s crude facilities. The devastating drone attacks on Aramco's largest oil processing plant site Abqaiq along with the Khurais oilfield may have cut Saudi Arabia’s oil output by almost half (read: Profit From the Oil Rush With These ETFs).

Invesco Dynamic Energy Exploration & Production ETF (PXE) (up 12.4%) and First Trust Energy AlphaDEX Fund FXN (up 11.5%) are among the top performers.

Turkey

Turkey has been on the headlines for back-to-back massive rate cuts. Turkey’s central bank governor Murat Uysal lowered the key rate to 16.5% from 19.75% on Sep 12. Before this, Turkey’s central bank slashed the key interest rates from 24% to 19.75% in late July (read: Top ETF Stories of July).

It is widely believed that the rate cuts will help Turkey recover from recession and bring down its elevated unemployment rate. The Turkish economy shrank 1.5% year over year in the second quarter, better than expectations, and “recorded another positive quarter-on-quarter reading as it looks to shake off the effects of recession after last year's currency crisis.” iShares MSCI Turkey ETF (MC:TUR) has gained about 11.6% in September (read: Turkey ETF Beats S&P 500 in the Past Month: Here's How).

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