A slew of companies have surpassed analysts' estimates in what was otherwise expected to be a dreary earnings season. These invigorating results have propped up several sectors that had previously been stagnating. Four sector-focused ETFs are on fire right now:
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Breaking Ground
Going into Q2 earnings, the iShares Dow Jones U.S. Home Construction Fund (NYSE: ITB) was an unlikely winner. Rising unemployment, falling real estate prices and swelling inventories have all been major obstacles facing the sector in recent quarters. Homebuilder stocks are far from being out of the woods, but ITB has been one of the top-performing ETFs as it rose 22.2% in July.
A couple of positive developments in recent weeks should bode well for homebuilders going forward. The Case-Shiller index, a gauge of home prices in major U.S. cities, rose slightly for the three-month period ending in May. This was the index's first rise after 34 straight months of deterioration. Another positive indicator that housing could be on the upswing is the notion that new-home sales rose 11% from May to June.
The Semiconductor Space
An oversupply of memory chips proved to be one of the prime factors that did in the semiconductor space in 2008. The Semiconductor HOLDRs (NYSE: SMH) was thrown for a 45% loss in 2008, but over the past four weeks, SMH has been one of the hottest ETFs to rise to the occasion. The fund is up 15% over this time period.
Texas Instruments (NYSE: TXN) and Intel (Nasdaq: INTC) account for 45% of this ETF's net assets. These two chipmakers have driven the semiconductor rally after both companies reported Q2 results that beat analysts' expectations. Intel also expects to top Wall Street's estimates for Q3 as the company has noted that its PC business segment is setting up for a strong second-half to the year.
Back To Basics
The coal industry experienced a mighty fall along with last year's commodity bubble, but it has been starting to regain lost ground. The Market Vectors Coal ETF (NYSE: KOL) has surged over 15% during the last four weeks even as the demand for coal has dipped in 2009. This ETF now sits at its highest point this year.
Investors can hope that the results out of Massey Energy (NYSE: MEE), one of the ETF's top holdings, are indicative of the industry as a whole. The company is coming off a Q2 in which it beat analysts' expectations as the coal producer lowered production and trimmed costs. Massey also gained market share during the quarter as it increased shipments of coal to utilities.
Another natural resources play making an impressive showing in recent weeks has been the PowerShares Dynamic Basic Materials Fund (NYSE: PYZ). This ETF is up 13% over the past four weeks. PYZ has a broader focus than KOL. It holds 60 stocks in a wide array of industries that include fertilizer, glass, steel and copper.
The Bottom Line
Q2 earnings have proven to be a pleasant surprise for several sectors thus far. The homebuilder, semiconductor and basic material stocks have been among the biggest beneficiaries. With expectations rising, it remains to be seen whether these ETFs will be able maintain their momentum or if their fire will soon be extinguished. (Learn more about the differences between ETFs and other index-tracking funds in our article ETFs Vs Index Funds: Quantifying The Differences.)
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