5 Best ETFs of Q3 With Room for Further Upside

Wall Street’s performance has been strong in the third quarter despite the recent market rout. Though the major U.S. stock indices logged in four consecutive weeks of losses, the S&P 500 and the Nasdaq Composite Index are on track for their best two-quarter winning streaks since 2009 and 2000, respectively.

Positive development surrounding COVID-19 vaccine and continued support from the Federal Reserve boosted the market. The encouraging data indicating that the U.S. economy is gradually returning to the pre-pandemic level also added to the strength. Additionally, renewed hopes for further stimulus coupled with bouts of upbeat economic data lifted investors’ sentiment. U.S. House of Representatives Speaker Nancy Pelosi indicated that the talks for the long stalled stimulus package of $2.2 trillion coronavirus relief bill have been continuing and it might come before November elections (read: Trump vs. Biden First Presidential Debate: ETFs in Focus).

However, volatility would continue to shake the U.S. stocks given the election uncertainty and resurging COVID-19 cases, which sparked concerns over global economic growth. The sharp sell-off in tech stocks on lofty valuation fears and lack of additional stimulus also took toll on the stocks in September.  

That said, we have highlighted five ETFs from different corners of the equity market that raked in more than 25% gains in the third quarter and could be better plays if the trend prevails.

Invesco Solar ETF TAN – Up 67.7%

The solar industry has been on fire buoyed by the presumptive Democratic presidential candidate Joe Biden’s push for clean energy and infrastructure plans. This fund offers global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 32 stocks in the basket. U.S. firms dominate half of the fund’s portfolio, followed by China (21.6%) and Germany (5.7%). The product has amassed $1.4 billion in its asset base and trades in a solid volume of around 723,000 shares a day. It charges investors 71 basis points (bps) in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Here’s Why Clean Energy ETFs Are Shining Bright).

Roundhill Sports Betting & iGaming ETF BETZ – Up 42%

The digital shift has led to the rapid adoption of esports and increased video game usage. This ETF debuted in early June and has already attracted $134.3 million in AUM. This ETF is designed to offer retail and institutional investors global exposure to sports betting and iGaming industries by tracking the Roundhill Sports Betting & iGaming Index. The fund holds 37 stocks in its basket with each accounting for less than 9.5% share. It charges 75 bps in annual fees and trades in an average daily volume of 230,000 shares.

Invesco DWA Consumer Cyclicals Momentum ETF PEZ – Up 37.2%

The cyclical sector has been benefiting from the optimism over a coronavirus vaccine and the recovering economy. This is because these are tied to economic activities, and when there is higher growth, these perform well. PEZ tracks the DWA Consumer Cyclicals Technical Leaders Index. It holds 43 stocks having positive relative strength (momentum) characteristics. About 30.3% of the portfolio is dominated by specialty retail while Internet & direct marketing, hotels, restaurants & leisure round out the next two spots. The fund has managed $63.6 million in its asset base while trading in a lower average daily volume of 11,000 shares. It charges 60 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

MicroSectors FANG+ ETN FNGS – Up 28.7%

FAANG stocks have been gaining on stay-at-home trends amid the pandemic. This ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index, designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 stocks in equal weights of 10% each in its basket and charges 58 bps in annual fees. The product has accumulated $56 million in its asset base and trades in average daily volume of 26,000 shares. It has a Zacks ETF Rank #3 (read: 3 Reasons Why Big Techs Are a Buy Now: ETFs in Focus).

Renaissance IPO ETF IPO – Up 27.7%

The U.S. IPO market has been buzzing this year with many new debuts successfully soaring and many more listings to come. This fund provides exposure to the largest and most liquid, newly listed companies by tracking the Renaissance IPO Index. It currently holds 47 stocks in its basket with technology taking the top sector accounting for 46.1% share while healthcare and consumer discretionary round off the next two spots with double-digit allocations each. The fund has amassed $209.1 million in its asset base while it trades in a moderate volume of about 147,000 shares, probably implying additional cost beyond the expense ratio of 0.60%.

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Invesco Solar ETF (TAN): ETF Research Reports

Invesco DWA Consumer Cyclicals Momentum ETF (PEZ): ETF Research Reports

Renaissance IPO ETF (IPO): ETF Research Reports

MICRSFANG (FNGS): ETF Research Reports

Roundhill Sports Betting iGaming ETF (BETZ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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