ETF Watchlist: Week of September 18, 2017

All eyes are on the Fed this week as Janet Yellen and company sit down for their quarterly meeting with the interest rate announcement and press conference coming on Wednesday afternoon. It’s a virtual lock that interest rates will remain unchanged, while the Fed futures markets are pricing in a roughly 60% chance of a hike in December.

In Jeff Miller’s “Weighing The Week Ahead” piece this week, he talks about the Fed’s role in current asset pricing. Specifically, he wonders if a more aggressive Federal Reserve could spark the market correction that we haven’t seen in more than a year and a half. I think that the Fed has had at least some role in propping up the markets. Given current economic growth, unemployment and income levels, the Fed Funds rate should be well above the 1% level. Still, the Fed will look to move cautiously to keep the economy from swaying back towards recession.

The markets hate uncertainty and any notion from Janet Yellen indicating that Fed is ready to raises at a more rapid pace or that it will take a less accommodative role will likely be met with strong selling. Could it be the catalyst that eventually pushes the Dow down, say, 5% or so? It could, but I’m guessing that Yellen will remain cautious in her tone so as to not shake things up too much. The bulls remain in firm control right now, so indications that the status quo will remain should be met with further buying. It shouldn’t be a volatile week, but things can change on a dime.

On that note, here are the four ETFs that I’ll be keeping an eye on this week.

Vanguard REIT ETF (VNQ)

I wrote a piece earlier this week talking about the pending underlying index change for the Vanguard REIT ETF. To summarize, the fund is underperforming this year because some of the best performing real estate related securities aren’t in the index. As a result, Vanguard is going to change to a more inclusive index going forward. One of the biggest potential impacts of this change could be in the fund’s dividend yield. It currently sits at around 4.3% but the yield of the new index is only about 3.7%. REITs are popular among dividend seekers due to their high yields, but could a drop in this fund’s yield begin forcing shareholders to look elsewhere for their income?

Others: Real Estate Select Sector SPDR ETF (XLRE), Fidelity MSCI Real Estate Index ETF (FREL), iShares U.S. Real Estate ETF (IYR)

Goldman Sachs Equal Weight U.S. Large Cap Equity ETF (GSEW)

Occasionally, a new fund launch is notable right off the bat and this is one of those cases. Equal weighting has become a popular alternate strategy to traditional market cap weighting. Goldman Sachs’ new equal weight ETF enters the fray that, while not specifically indexed to the S&P 500, looks to invest in 500 of the largest U.S. companies. The fund is notable because of its expense ratio. The Guggenheim S&P Equal Weight ETF (RSP) is easily the largest in the space with nearly $14 billion in assets. It used to be one of the cheapest with an expense ratio of 0.20%. Goldman’s new fund comes in at just 0.09%, making it now the cheapest equal weight fund in the marketplace. Could it trigger a price war between the two funds? Perhaps, but at least one thing is clear. Investors will be the ones to benefit.

Others: Guggenheim S&P Equal Weight ETF

ETFMG Prime Cyber Security ETF (HACK)

You may have heard about the data breach at Equifax (EFX) that affected some 143 million individuals. The obvious play on this incident is the Cyber Security ETF, which bounced around 2% following the news. The fund has gained over $1 billion in assets as investors realize that cyberterror is going to be a long-term threat. Cybersecurity stocks tend to bounce modestly when breaches like this become public. The ETF has been a wild ride over its nearly three year existence, but it’s up 15% year-to-date and gaining steady interest.

Others: First Trust Nasdaq CEA Cybersecurity ETF (CIBR)

Global X Lithium & Battery Tech ETF (LIT)

One of the best performing commodities in 2017 has been lithium. Its price has risen around 50% this year alone.

The big catalyst has obviously been Tesla (TSLA) and the emerging electric car boom that will be powered by lithium ion batteries. The only ETF targeting lithium, the Global X Lithium & Battery Tech ETF, is up nearly 60% this year. The fund has about a 5% stake in Tesla, but the its top two holdings, FMC Corporation (FMC) and Sociedad Quimica y Minera, account for about 42% of the fund.

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