Philip Pilosian/Shutterstock.com
- As the US economy opens up, investors have been piling into stocks tied to hopes of renewed growth and consumer spending.
- "ETFs are an instant global diversification to many different companies from around that industry," Andrew Chanin, CEO of ProcureAM, told Insider.
- Year-to-date, some ETFs tied to oil, air travel and retail have seen record highs.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell
Vaccine distribution is priming the economy for a reopening later this year, and the pace so far has been faster than officials expected. Optimism is growing and investors have been piling into stocks that were beaten down by the pandemic but are now set to thrive as economic activity restarts. Investors are finding ETFs to be a solid bet on a range of reopening plays, sending some funds soaring year-to-date in 2021.
"ETFs are an instant global diversification to many different companies from around that industry," Andrew Chanin, CEO and co-Founder of ProcureAM, told Insider. Chanin is behind UFO, an ETF focused on space exploration launched in 2019. UFO, he said, is "for investors looking to get access to the space economy and don't want to settle or just pick a couple of names."
Year-to-date, ETFs tracking oil, air travel, and retail are soaring, thanks to the value stocks – typically well-established companies that are often undervalued and have lower price-to-earnings ratios – in their holdings that could appreciate with a burst of new economic activity.
Cyclical industries are usually attuned to various business cycles. Revenues are higher when there is economic growth and lower in times of contraction.
Andrew Slimmon, managing director and senior portfolio manager at Morgan Stanley Investment Management, in a recent note said he is "extremely bullish" on value stocks, especially after the Federal Reserve's decision to keep its policy in place until the US economy rebounds last week.
Here are three ETFs that are benefitting from investor sentiment around the economic reopening:
1. USO
The United States Oil Fund primarily invests in listed crude oil futures contracts and other oil-related contracts. The ETF, which debuted in 2006, may also invest in forwards and swap contracts.
The roughly $3 billion fund has gained 26% year-to-date.
Oil prices have soared since mid-February due to outages in Texas from the freezing temperatures. Refineries have taken a while to bounce back from the historic blast of winter weather, causing inventories to drop. Still, a summer rally may be in store for the oil ETF amid a tighter market.
Bank of America in February said Brent Crude prices could hit $70 a barrel in the second quarter of 2021. This year, it could average $60, the bank said, raising its average price outlook by $10 a barrel.
2. JETS
The US Global Jets ETF invests in the global airline industry, which includes airline operators and manufacturers around the world.
Launched in 2015, the roughly $11.5 billion fund has gained 25% year-to-date.
The index utilizes a tiered weighting scheme driven by market capitalization and passenger load. 70% of its weight is in US large-cap passenger airlines with the top four companies receiving 10% each. The next five largest US or Canadian airlines each receive a 4% weighting.
United Airlines and American Airlines are the ETF's biggest holding both at 11% each, followed by Southwest Airlines and Delta Airlines at roughly 10% each. Alaska Air Group takes up 4%
The airline industry was among those that suffered the most when large swaths of the global economy shut down, halting travel in nearly every part of the world for some time. Optimism is gaining, however, when the Transportation Security Administration in mid-March revealed that air travel spiked to its highest level in nearly a year.
3. XRT
The SPDR S&P Retail ETF primarily invests in the US retail industry from apparel, automotive, computer and electronic, to department stores, general merchandise stores, and internet and direct marketing, among others.
The roughly $635 million fund has gained 42% year-to-date.
The top sectors it focuses on are internet and direct marketing at 21.5%, followed by automotive and retail at 18% each.
Holdings include Hibbett Sports, Wayfair, Best Buy, eBay, Murphy USA, Revolve Group, Magnite, Dick's Sporting Goods, Albertsons companies, and Target, all weighing a little over 1% each.
As the economy rebounds from pandemic lows, the retail sector is making a strong comeback, driven by the pent-up consumer demand. Retail sales, according to the National Retail Federation, are expected to grow between 6.5% and 8.2% this year to more than $4.33 trillion in sales.
Many of the retail companies have also invested in enhancing their online presence to catch up on the e-commerce trend that many experts say is here to stay.