Second-longest shutdown puts these ETFs in focus

 

The partial government shutdown, which began on Dec 22, has extended to 18 days and is now the second longest in history, trailing the 21-day closure during the Clinton administration that began in December 1995. The shutdown is due to lack of progress in passing a spending bill, wherein Trump demanded funding for $5.6 billion for a border wall that is being opposed by the Democrats.

Though the impact of this shutdown is limited affecting nine federal departments and other agencies totaling about 800,000 federal workers, it has left many workers feeling the pinch with half of them on leave and the other half working without pay. The shutdown has started to hurt the economy, resulting in a delay of U.S. tax refunds and mortgage applications. Also, public companies are unable to get approval to raise capital, the Women, Infants, and Children nutrition program went unfunded, and the Food and Drug Administration delayed approval of drugs and medical devices.

Early reports suggest that the prolonged shutdown started to take toll on the air travel industry due to an uptick in sick leave by transportation security employees required to work without pay, as well as delayed training for new pilots and air traffic controllers. Defense companies have also started to feel the pain as many of them hold contracts with agencies that are not currently funded, like the Department of Homeland Security — which includes the Coast Guard as well as Customs and Border Protection — and NASA.

According to the White House Council of Economic Advisers, the ongoing partial government shutdown will cut U.S. economic output by about 0.1% every two weeks (read: A Pack of ETFs to Buy for 2019).

The slowdown in government activity could shake confidence and cause businesses and consumers to stop spending. Millions of Americans have to go without the benefit that allows them to purchase food if the government shutdown continues into February. Per the U.S. Department of Agriculture, the Supplemental Nutrition Assistance Program, known as SNAP or food stamps, costs an average of around $4.8 billion per month and more than 19 million households in the United States receive food stamps, accounting for nearly 39 million people. Due to the government shutdown, the program has only $3 billion in emergency reserves for February.

Against such a backdrop, we have highlighted several ETFs that would be in focus in the days ahead.

U.S. Global Jets ETF (JETS)

This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 34 securities and charges 60 bps in annual fees. It has gathered $86.1 million in its asset base while sees moderate trading volume of nearly 28,000 shares a day. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

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

This fund provides investors exposure to the broad aerospace and defense industry by tracking the Dow Jones U.S. Select Aerospace & Defense Index. Holding 36 stocks, the fund is highly concentrated on the Boeing (BA) at 11.5%, while other firms make up for no more than 8% share each. The fund has AUM of $4.5 billion while charging 43 bps in fees a year. Volume is good at around 300,000 shares. The ETF has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Defense ETFs in Focus as Trump Proposes to Raise 2020 Budget).

Invesco Dynamic Food & Beverage ETF (PBJ)

This product offers exposure to 30 stocks that are engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies by tracking the Dynamic Food & Beverage Intellidex Index. With AUM of $68.5 million, the fund charges 63 bps in annual fees from investors and sees a light average daily volume of 8,000 shares. It has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.

Consumer Discretionary Select Sector SPDR Fund (XLY)

XLY offers exposure to 65 consumer discretionary stocks by tracking the Consumer Discretionary Select Sector Index. Amazon (AMZN) takes the largest share at 23.3% while other firms hold less than 10.1% of assets. The ETF is the largest and most popular product in this space with AUM of $12 billion and has 0.13% in expense ratio. It trades in average daily volume of more than 7 million shares, and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Will Amazon Recover From Q4 2018 Slump? ETFs in Focus).

Zacks Investment Research

Symbols: AMZN BA ITA JETS PBJ XLY

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