Market Overview

3 Sector ETFs with Upside Potential (LIT, PSCC)

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Finding so-called safe havens is getting harder, particularly at the sector level. Thursday's bloodbath serves as a reminder that even the most popular safe-haven sectors are often just less bad than the broader market.

Take the examples of the Consumer Staples Select Sector SPDR (NYSE: XLP) and the Utilities Select Sector SPDR (NYSE: XLU). Two of the most popular safe haven destinations among sector funds are now showing signs of vulnerability.

In the past five trading days, XLU and XLP are off 1.8 percent and 1.2 percent, respectively, but the SPDR S&P 500 (NYSE: SPY) is down just 0.3 percent. Then there is the case of the Health Care Select Sector SPDR (NYSE: XLV), another supposed "boring is beautiful" play. The danger with XLV is that the ETF's correlations to higher risk sector funds are on the rise.

Said another way, the options for sector ETFs with near-term upside potential are dwindling. However, there are a few that deserve consideration.

First Trust NYSE Arca Biotech Index Fund (NYSE: FBT) With a spate of FDA-related headlines expected in the coming weeks and the ever-present possibility of mergers and acquisitions activity, biotech ETFs are worth a look here. The sectors volatile reputation might chase some investors away in this risk off environment, but FBT's correlations, or lack thereof are compelling.

In the past 90 days, FBT has jumped 9.6 percent compared to a 2.3 percent increase for XLV and a 4.3 decline for SPY. Perhaps more importantly, biotech stocks and ETFs enjoy a useful advantage over other sector funds: Almost no correlation to Europe. In fact, FBT has been shown an almost perfect inverse correlation to the Vanguard MSCI Europe ETF (NYSE: VGK) over the past three months. VGK is down 9.4 percent over that time.

PowerShares S&P SmallCap Consumer Staples Portfolio (NASDAQ: PSCC) The consumer staples ETF conversation has a tendency to revolve around XLP and the Vanguard Consumer Staples ETF (NYSE: VDC), so it is easy to overlook the PowerShares S&P SmallCap Consumer Staples Portfolio. Despite its small-cap focus, PSCC is the best performer among this trio over the past 30 and 90 days.

PSCC's lineup is not unfamiliar nor highly speculative. Top-10 holdings include Hain Celestial (NASDAQ: HAIN), Casey's General Stores (NASDAQ: CASY) and Boston Beer (NYSE: SAM).

Global X Lithium ETF (NYSE: LIT) With almost no fanfare, the Global X Lithium ETF has jumped 8.5 percent in the past month. LIT, which will celebrate its second birthday in a month, has not always been an under-the-radar play. The ETF came roaring out of the gates in 2010 as investors bought into the theory that lithium was the next great commodities story.

Enthusiasm for the lithium story and LIT later waned, but a renaissance appears to be underway. Prices have tripled since 2000 in a market now worth $1 billion, Bloomberg reported. Translation: LIT is still a valid backdoor play on increased iPad and Prius sales.

For more on sector ETFs, click here.

Posted-In: Long Ideas News Sector ETFs Short Ideas Commodities Intraday Update After-Hours Center Markets Best of Benzinga


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