(The opinions expressed here are those of the author, a
columnist for Reuters)
By John Wasik
CHICAGO, July 28 With a relatively robust first
half for the U.S. stock market in the rear-view mirror, can you
expect hot sectors to continue their climb for the rest of this
The answer is "yes", assuming the news is generally
positive, and barring any nasty geopolitical or economic
surprises. Although there are a few high-glamour stocks leading
the way, several sectors are relative dullards, yet still worth
One of the biggest winners in the first half were aluminum
stocks, up 55 percent through July 18, according to Standard &
Poor's. While hardly on anybody's list of sexy holdings,
aluminum is a basic metal widely used in vehicles, appliances
You can find one of the industry's leading aluminum
producers, Alcoa Inc, in the Vanguard Materials Fund ETF
. The Vanguard fund, charging 0.14 percent for annual
management expenses, also includes stakes in chemical, paper and
steel companies such as Monsanto Co, Dow Chemical Co
and DuPont & Co. As well as aluminum, other basic
materials stocks such as these will do well if the general
economy and manufacturing continue to ascend.
The Vanguard fund is up nearly 25 percent for the 12 months
through July 25 and serves as a bellwether for industrial
production, which shows the relative health of the economy. That
compares with a 20 percent gain for the broader S&P 500 index
for the same period.
One of the least-efficient ways to hold aluminum is through
an exchange-traded fund such as PowerShares DB Base Metals ETF
, which holds about a third of its portfolio in futures
contracts in aluminum, bets on the future price of the metal.
The fund is only up about 8 percent for the 12 months through
July 25 and charges a hefty 0.75 percent annual management fee.
And even harder-charging sector has been semiconductor
equipment and manufacturing, which are basic components in the
information age. The equipment and manufacturing groups are up
27 percent and 23 percent, respectively, in 2014 through July
18, according to S&P.
An exchange-traded fund such as the Market Vectors
Semiconductor ETF, which charges 0.35 percent in annual
management fees, is one way to hold this sector. It owns stocks
such as Intel Corp, Taiwan Semiconductor Manufacturing
Co and ASML Holding NV. The fund has gained
30 percent for the 12 months through July 25.
An alternative to the Market Vectors fund is the slightly
better-performing iShares PHLX Semiconductor ETF, which
is up 34 percent for the year through July 25. It holds many of
the same companies as the Market Vectors fund.
Although there may be enough momentum to push the first
half's hot sectors to further gains in the second half, nothing
is guaranteed. Subsectors - particularly in commodities and
semiconductors - are notoriously volatile. At any hint of a
slowdown in economic growth or demand, institutions sell them
If you want to be more defensive, that is more insulated
against selloff pressures, consider the traditional fallback
sectors of energy, healthcare and utilities, which grew 11
percent (for energy and healthcare) and 12 percent,
respectively, for the year through July 18.
What will drive U.S. stock prices, outside of broader
economic trends, are earnings. To date, the outlook has been
sanguine. In a recent blog post, Ed Yardeni, of Yardeni
Research, made the following point: "With the exception of
emerging markets, the U.S. stands out as having one of the
best-looking forward revenues profiles among the various major
global MSCI composites," he said.
"It has the best profile for forward earnings. The U.S.
forward profit margin is at a record high, yet still trending
This isn't to say that tensions in the Middle East, rising
oil prices or interest rates won't sway the market's mood. These
gremlins are worth watching. But in the interim, keep an eye on
corporate earnings reports. They mostly reflect the rising tide
of the global economy.
(Follow us @ReutersMoney or here
Editing by Lauren Young; and Peter Galloway)