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4 ETF Zones Set to Bloom in a Booming Job Market

Hiring picked up pace in March as rapid vaccinations and opening of the economy powered the labor market recovery. This is especially true as the United States added 916,000 jobs – the fastest pace since August last year. Meanwhile, the unemployment rate fell to a pandemic low of 6%.

The job gains were broad-based with leisure and hospitality, public and private education and construction adding the most. The leisure and hospitality sector added 280,000 jobs while public and private education added 190,000 jobs. The jobs in the construction sector soared by 110,000.

The $1.9 trillion relief package enacted in March also led to the strength. Democrats' stimulus plan includes $1,400 direct payments, a $300 supplement to federal unemployment benefits, and aid for state and local governments. Despite the solid gains, the economy has to recoup about 9 million jobs to return to the pre-crisis level. Stronger economic growth, more stimulus and an aggressive vaccination effort could fulfill this gap.

According to the latest Bloomberg's vaccine tracker, about 2.8 million average vaccines were being administered every day by the end of last month, up from 1.7 million on the last day of February. At the current pace, it would take about four months to inoculate 75% of the population. President Joe Biden last week proposed the $2.3 trillion American Jobs Plan that focuses on improving American infrastructure. The proposal includes funds for restoring roads and bridges, shoring up affordable housing, backing clean-energy projects, and creating a nationwide broadband network. This will create millions of jobs, resulting in solid hiring in the coming months (read: ETFs to Win on Biden's Infrastructure Plan).

Further, Americans are growing optimistic about an economic recovery. This is especially true as the University of Michigan’s final sentiment index climbed to a pandemic high of 84.9 in late March from a preliminary reading of 83. The Conference Board on consumer confidence index also jumped to 109.7 in March — the highest level since the onset of the pandemic in March 2020. This will increase consumer spending, which will translate into stepped-up economic activity and thus continued recovery in the labor market.

Against such a backdrop, we have highlighted four ETFs that are the direct beneficiaries of job gains and are likely to surge in a booming job market.

ETF Picks

Invesco DB US Dollar Index Bullish Fund UUP

A healing job market and a recovering economy will pull in more capital into the country and lead to appreciation of the U.S. dollar. UUP is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies — euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of the U.S. Treasury securities. The fund has so far managed an asset base of $377 million while seeing an average daily volume of around 1.2 million shares. It charges 76 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: U.S. Dollar to Strengthen? ETFs to Gain/Lose).

iShares Russell 2000 ETF IWM

As pint-sized stocks are closely tied to the U.S. economy and do not have much exposure to the international market, these stocks generally outperform on improving American economic health. IWM is one of the largest and the most-popular ETFs in the small-cap space with AUM of $69.3 billion and an average daily volume of 29.7 million shares. It holds 2,059 stocks with each holding less than 0.6% share. The fund charges 19 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

Consumer Discretionary Select Sector SPDR Fund XLY

Robust job gains will increase consumers’ power to spend more on luxury items. While most of the consumer discretionary ETFs will benefit from this trend, the ultra-popular XLY having AUM of $19.4 billion and an average daily volume of 4.4 million shares could be a compelling choice. It tracks the Consumer Discretionary Select Sector Index and holds 63 securities with higher concentration on the top two firms with 23.1% and 13.6% share, respectively. Other firms make up for a nice mix with each holding less than 9% of assets. The fund charges 12 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Why Fear Rising Rates? Play Cyclical ETFs).

SPDR S&P Homebuilders ETF XHB

Solid labor market fundamentals along with affordable mortgage rates will continue to fuel growth in the homebuilding sector. The most popular choice in the homebuilding space, XHB, follows the S&P Homebuilders Select Industry Index. In total, the fund holds about 35 securities in its basket with each accounting for less than 4.8% share. It has amassed $1.7 billion in its asset base and trades in heavy volume of around 2.3 million shares. Expense ratio comes in at 0.35%. XHB has a Zacks ETF Rank #3 with a High risk outlook.

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iShares Russell 2000 ETF (IWM): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
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