Canada markets closed

5 Surprising ETF Winners Amid Stimulus-Fed Wall Street Rally

Sanghamitra Saha

After a terrifying roller-coaster ride, Wall Street surged on Mar 17 on stimulus hopes. After the Fed’s adoption of a crisis-era monetary policy failed to stem a market crash, the U.S. government stepped up its plans to lower the virus-induced economic fallout. The government announced plans to send cheques directly to American citizens as an emergency financial aid, per an article published on the Guardian.

The windfall is part of a massive $850-billion stimulus package the Trump administration is negotiating with Congress. The bank bailout package agreed at the time of the financial crisis more than decade ago was worth $700 billion.

The Federal Reserve will also invest $10 billion in a special purpose vehicle to provide guarantees that the central bank would purchase up to $1 trillion of U.S. corporate bonds if required, to calm financial markets down, per the Guardian article.

The White House also planned to allow individual taxpayers to defer payments of up to $1 million and for companies of up to $10 million. The step could cost the government about $300 billion. The volley of stimulus measures has boosted Wall Street as well as many global markets.

Key U.S. equities gauges like the S&P 500, the Dow Jones, the Nasdaq and the small-cap Russell 2000 added about 6%, 5.2%, 6.2% and 6.7%, respectively, on Mar 17. The U.S. benchmark treasury yields also surged on higher risk-on trade sentiments. Yield on 10-year treasury bonds rose to 1.02% on Mar 17 from 0.73% recorded the day earlier.

The ETF Gainers Might Surprise You

Against this backdrop, we highlight a few ETFs that gained the most in the stimulus-fed Wall Street rally. While almost the entire market gained, most of the solid gainers were from safe sectors, indicating that investors are still spooked by the virus. Stimulus will probably ensure the sustainability of the relatively safer, essential and non-cyclical sectors as the U.S. economy stands still.

In normal scenarios, growth stocks tend to gain more in a sweeping market rally. But SPDR Portfolio S&P 500 Growth ETF SPYG (up 5.3% on Mar 17), SPDR S&P 500 ETF Trust SPY (up 5.98%) and SPDR Portfolio S&P 500 Value ETF SPYV (up 5.5%) offered almost in-line gains on Mar 17.

Let’s take a look at the winners:

VanEck Vectors Junior Gold Miners ETF GDXJ — Up 21.9% on Mar 17

The fund tracks the overall performance of the gold mining industry. Bullion fund SPDR Gold Shares GLD gained about 1.6% on Mar 17. The metal is thriving on safe-haven demand. It may also benefit from its status as a hedge against inflation (read: TIPS ETFs in a Sweet Spot: Here's Why).

Mining stocks normally act as a leveraged play of the underlying bullion. Oil is one of the major inputs for mining companies. As we all know, oil prices have been suffering now. Thus, per some analysts, with the rising gold-to-oil-ratio, gold miners’ margin potential is getting stronger.

Utilities Select Sector SPDR Fund XLU — Up 13.0%

The sector is rate-sensitive in nature and usually performs well in a low-rate environment. Still, the fund gained hugely on Mar 17 despite the sharp spike in treasury bond yields. It means that investors’ sentiments are still wavering and they are looking to bet on safe sectors.

Vanguard Consumer Staples Index Fund ETF Shares VDC — Up 9%

The situation has been no different for non-cyclical staples sector. After all, people under quarantine require daily essentials (read: Tackle Market Gyrations With Buffett's Style of ETF Investing).

Invesco S&P 500 Low Volatility ETF SPLV — Up 8.9%

Low-volatility ETFs have been in fine fettle amid the market rally. “Academic studies show that lower risk stocks have rewarded investors with higher risk-adjusted returns than the broader markets over longer-term” (read: Do Low Volatility ETFs Outperform During Market Turmoil?).

iShares PHLX Semiconductor ETF SOXX — Up 8.8%

The demand for technology as well as semiconductors will always be high in today’s world. Even amid the coronavirus crisis, many cloud and online stocks as well as ETFs held up better than the broader market. This clearly shows that this cyclical sector like this is gradually turning into an essentiality (read: Stimulus Hopes Triumph Over Virus: 5 Top ETF Picks for March).

Want key ETF info delivered straight to your inbox?