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ETFs to Watch in a Week Packed With Events

This week is full of events starting from the Fed meet to the upcoming producer price inflation numbers and the ongoing Russia-Ukraine war. As such, investors should keep a close eye on ETFs that are most exposed to these events.

Some of the ETFs include SPDR S&P Regional Banking ETF KRE, Vanguard Energy ETF VDE, iShares U.S. Aerospace & Defense ETF ITA, Invesco DB Commodity Index Tracking Fund DBC and Vanguard Value ETF VTV.

Fed Meet

Fed Chair Jerome Powell is expected to raise the key interest rate from near zero for the first time since 2018 at the Mar 15-16 monetary policy committee meeting to fight a historic surge in inflation. The move would mark an end to the central bank’s extraordinary coronavirus crisis-era stimulus.

Powell proposed a quarter-point hike instead of a half-point, indicating uncertainty related to the ongoing war. But he could move “more aggressively” if four-decade inflation does not abate substantially. Powell called the labor market “extremely tight” and said inflation has risen well above the Fed’s 2% target. According to CME Group’s FedWatch, investors expect seven times rate hikes this year in each of the seven meeting scheduled.

Producer Price Inflation Number

Producer price data for February is due this week. U.S. producer prices increased the most in eight months in January amid skyrocketing inflation. The latest data from the consumer price index, reflects a 40-year high inflation. The Consumer Price Index, the most widely used measure of inflation, rose 0.8% in February – the highest level in 40 years (read: 4 Sector ETFs to Win From February Inflation Report).

Russia-Ukraine Crisis

The conflict between Russia and Ukraine has been worsening as sanctions from the Western countries started to hurt many segmnets of the market.

In the latest round of sanctions, the West has targeted the energy sector. The United States will ban all Russian oil and gas imports while the UK will phase out Russian oil by the end of 2022. The European Union, which gets a quarter of its oil and 40% of its gas from Russia, said it will switch to alternative supplies and make Europe independent from Russian energy "well before 2030." Germany halted the approval of a major gas pipeline project, Nord Stream 2, in Russia.

Further, the United States is banning imports of Russian alcohol and seafood, as the White House looks to ratchet up punishment over Moscow’s invasion of Ukraine. This follows a series of significant sanctions actions against Russia in recent weeks.

ETFs in Focus

SPDR S&P Regional Banking ETF (KRE)

Banks will be the most advantageous position when Fed rates hike as they seek to borrow money at short-term rates and lend at long-term rates. If interest rates rise, banks would earn more on lending and pay less on deposits. This would expand net margins and bolster banks’ profits. SPDR S&P Regional Banking ETF provides exposure to the regional banks’ segment by tracking the S&P Regional Banks Select Industry Index. It holds 137 stocks in its basket, with each accounting for no more than 3% of the assets.

SPDR S&P Regional Banking ETF has AUM of $5.3 billion and charges 35 bps in annual fees. It trades in an average daily volume of 11.6 million shares and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.   

Vanguard Energy ETF (VDE)

Energy stocks performs well in high-inflation environments. Vanguard Energy ETF is one of the popular choices in the energy space, having accumulated $8.7 billion in its asset base. It provides exposure to a basket of 103 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index.

Vanguard Energy ETF sees a good volume of about 2 million shares and charges 10 bps in annual fees. VDE has a Zacks ETF Rank #2 with a High risk outlook.

iShares U.S. Aerospace & Defense ETF (ITA)

The aerospace and defense sector has been showing immense strength, following Russia’s invasion of Ukraine. This is especially true as the attack in Ukraine has raised the prospect of higher military spending, pushing the stocks higher. iShares U.S. Aerospace & Defense ETF provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. It holds 33 stocks in its basket with AUM of $3.2 billion and an expense ratio of 0.42% (read: Aerospace and Defense ETFs Rallying on Russia-Ukraine War).

iShares U.S. Aerospace & Defense ETF trades in an average daily volume of around 363,000 shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Invesco DB Commodity Index Tracking Fund (DBC)

Geopolitical tension has pushed commodity prices to levels not seen since the financial crisis, thereby benefiting commodity ETFs. Invesco DB Commodity Index Tracking Fund follows the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which is composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world (read: 5 ETFs to Tap the Commodity Rally Amid Russia-Ukraine Conflict).

With AUM of $4.2 billion, Invesco DB Commodity Index Tracking Fund trades in volume of 4.8 million shares per day on average and charges 87 bps in annual fees.

Vanguard Value ETF (VTV)

Amid the volatility, value products got a boost. Value stocks have strong fundamentals — earnings, dividends, book value and cash flow — but trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts. Vanguard Value ETF targets the value segment of the broad U.S. stock market and follows the CRSP US Large Cap Value Index. It holds 351 stocks in its basket with key holdings in financials, healthcare and industrials.

Vanguard Value ETF has AUM of $98.3 billion and charges 4 bps in annual fees. The product trades in volume of 4.4 million shares per day on average and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.


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SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
 
Vanguard Value ETF (VTV): ETF Research Reports
 
Invesco DB Commodity Index Tracking ETF (DBC): ETF Research Reports
 
iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports
 
Vanguard Energy ETF (VDE): ETF Research Reports
 
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