Fund Plays for the Third Quarter
Nathaniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the second quarter coming to a close you may be looking to shake things up. Up to this point, the broader market has performed exceptionally well with a 14% return in 2013.
If we take a look within the major indices we see this rally has been fueled by three major sectors with returns over 20%. Specifically the healthcare, financial, and consumer discretionary sectors have been outperforming. So lets check out some industry specific ETF's that could power your portfolio in the months ahead.
While rising interest rates may have shook the market, many banks are positioned to thrive in this type of environment. The Financial Select Sector SPDR ETF (NYSEMKT: XLF) is a popular investment vehicle as its well diversified. Its top three holdings happen to be JP Morgan Chase, Wells Fargo, and Berkshire Hathaway.
Over the last few years we've seen interest rates fall to generational lows making it tough for many financial institutions to turn a profit. During this time, banks were forced to become lean and mean through extensive cost cutting measures. However, as interest rates rise, the spread in which the institutions can borrow and lend widens, thus generating higher net interest margins.
The Financial Select fund will provide exposure to both the housing and consumer credit markets, both of which, will benefit greatly from rising rates. Additionally, rising consumer credit quality will increase the number of lending opportunities while minimizing delinquency risks. And yes, an investment here means your aligning your cash with Mr Buffett.
Cashing in on casinos
Recently anything associated with the Chinese economy has struggled as Asian markets have been crippled in the face of numerous headwinds. In China, fears of slowing growth, shrinking wages, lower liquidity, and a real estate bubble have popped up.
So you might be afraid to invest in a single casino operator. But the fact is when this condition turns, casino's are solid bets. No pun intended. Despite all the stuff going on in China, the casino industry is still up 13% this year.
For broad exposure, you might want to consider the Market Vectors Gaming ETF (NYSEMKT: BJK), which holds many familiar names including Las Vegas Sands, Wynn Resorts, and MGM. While the Chinese economy has struggled, Macau has showed little signs of a slowdown. The district just reported its highest level of GDP growth, over 10%, as a result of improving mass market gaming.
The growth in mass market gaming should continue amidst a slowdown as public accessibility to the region grows with improving infrastructure. The sell off in China may be overdone at this point, and many of these casino's look like value plays when you consider the growth ahead.
The healthcare sector has performed great so far with an astounding 21% gain year to date. The industry, should continue to benefit from a multitude of tailwinds including an aging population and rising demand for affordable healthcare.
Within the sector, biotech's have exploded as the market realized under priced growth within the industry's major players. So you may want to consider the SPDR S&P Biotech ETF (NYSEMKT: XBI). Through a set of 56 diversified holdings, the fund is expected to significantly grow over the next few years.
When you consider a relatively low forward multiple, you can clearly see the funds potential. Its top three holding are Amgen, Gilead Sciences, and Celgene, all of which have a deep pipeline set to mature over the next decade. When you take a look at Gilead and Celgene specifically, you see a PEG ratio just under 1, signaling growth may be undervalued.
While the third quarter might be turbulent, you should consider these funds for exposure to key sectors. The financial sector will benefit from rising interest rates and improving credit quality. The China stuff may be overdone and casino's should thrive. And the healthcare industry should benefit greatly over the next decade as rising demand for drugs and an aging baby boomer population should fuel growth.
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