3 hot ETFs destined to burn even brighter
If you can stomach some risk, consider allocating a small percentage of your portfolio to one of these high-flying funds riding momentous trends.
By Karen Riccio, Traders Reserve
As earnings season collides with the U.S. government shutdown, it's getting harder and harder to find much to be optimistic about heading into the fourth quarter.
Preliminary reads on guidance show only 18 companies are set to share good news, as opposed to 94 who are decidedly negative -- that's the highest number since at least 2006. Leading negative sectors within the S&P 500 Index ($INX) include technology, consumer discretionary and industrial.
But all that gloom means squat for a trio of stellar ETFs marching -- higher -- to their own drumbeat in three distinct but booming sectors.
These ETFs, the highest flying exchange-traded funds in the third quarter, are specifically focused on solar, social media and Chinese technology: Guggenheim Solar (TAN), the Global X Social Media Index (SOCL) and PowerShares Global Dragon China (PGJ).
While they focus on diverse sectors, these ETFs have three traits in common: All are thinly sliced, aggressive and riding momentous trends.
So, if you can stomach some risk and room in your portfolio, consider allocating a small percentage to one or all of them. Here is why each is riding high and should be more than one-quarter wonders:
Guggenheim Solar (TAN)
The revived popularity of solar power and a lucrative buying incentive program by the U.S. government are keeping TAN's momentum moving forward, up 45% in the past three months and 114% year to date.
Solar panel installations are increasing at a very fast rate; a system is put in place every two minutes. Plus, two-thirds of all installations took place over the past two years.
TAN’s top 10 holdings make up about 60% of the ETF, more about quality than quantity. One company with a 4.5% slice is SunPower (SPWR), the beneficiary of an uptick in use of solar power by very large data centers, i.e. Apple (AAPL) and Verizon (VZ).
SunPower is at the core of Apple's future solar panel farm next to its data center in Reno, Nev. The 137-acre solar array -- called Ft. Churchill -- will generate approximately 43.5 million kilowatt hours of clean energy for Sierra Pacific's power grid. Apple's North Carolina data center, the largest of its kind in the nation, is powered by two solar farms built by SunPower that generate 42 million kilowatt hours of clean, renewable energy annually for the 100-acre, 20-megawatt (MW) facility.
Verizon also signed a multi-year agreement with SunPower for its $100-million solar and fuel cell energy project that will help power 19 of its facilities in seven states across the country. Verizon hopes to generate more than 70 million kilowatt hours of its own green energy annually, while eliminating more than 10,000 metric tons of carbon dioxide. Verizon’s goal is to cut carbon emissions in half by 2020.
A recently released report by Bloomberg New Energy Finance predicts that solar power capacity will overtake wind for the first time this year due to a slowdown in use by China and the U.S.
New onshore and offshore wind farms are expected to add 33.8 gigawatts and 1.7 gigawatts, respectively, to global power markets. That compares with an estimated 36.7 gigawatts of new photovoltaic, or PV, capacity, giving solar the edge in megawatts.
There’s no end in sight for this trend, unless the government suddenly stops the incentive program. Right now, though, it has much bigger fish to fry.
PowerShares Golden Dragon China Portfolio (PGJ)
You would be hard-pressed to find a sector growing faster in China than the Internet. The China Internet Network Information Center (CNNIC), a state-affiliated research organization, predicted that at the current rate, the total number of Internet users in China will reach 800 million by 2015.
Seven of PGJ’s top-10 holdings or 53.5% of its weight is devoted to technology and Internet stocks. Up 38% in the third quarter and 51% year-to-date, key companies include: Sina (SINA), Baidu (BIDU) and Youku Tudou (YOKU), largely growth stocks focused on mobile users.
Baidu's share in the Chinese Internet market is 80%. It reaches a 1 billion-plus market that Google can’t touch because of Chinese Internet censorship laws.
Today, a total of 591 million internet users reside in China, the most in the world. However, that represents less than 40% of its population. That leaves a big part of China’s current and growing Internet market largely untapped. Nearly 80% of Americans use the Internet.
An interesting note about PGJ is that it only holds U.S.-listed Chinese securities. So, if China experiences another cooling off period, it will likely continue to outperform all the other China-related ETFs just as it has thus far in 2013.
The Global X Social Media Index (SOCL)
While this ETF had little trouble becoming a top performer in the third quarter, its future success may rest partly in the hands of a newbie to the NYSE: Twitter.
No exact date has surfaced, but post IPO (early 2014), Twitter will join some of the fastest-growing social media companies in Facebook (FB), Sina, LinkedIn (LNKD), Groupon (GRPN) and Pandora (P), which combine for roughly a third of SOCL’s weight. Just 26 holdings make up SOCL.
Like the growing trends in solar and China's Internet, social media will help lift SOCL to even bigger and better future returns than its 35% gain over the past three months and 54% in 2013.
Nearly one in four people worldwide will use social networks in 2013. The number of social network users around the world will rise from 1.47 billion in 2012 to 1.73 billion this year, an 18% increase. By 2017, the global social network audience will total 2.55 billion.
The popularity of Facebook and Twitter will no doubt add to the ETF's $53 million in assets, 31% of which poured into it since August.
More from Traders Reserve:
- The real winner in the phone and tablet wars
- 3 sizzling stocks for a year-end rally
- 3 savvy stock picks amid the Washington mess
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The company has made at least 4 acquisitions in the space, and few people have paid any attention.
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