ETF Trading Report: Pharma, Consumer ETFs in Focus


"The pharma sector experienced a boost in trading activity to start the week. Volume across the pharma space was high as investors sought exposure to perceived safe havens."

Despite the bailout deal for Spanish banks, U.S. equity markets tumbled to start the week as investors viewed the rescue as a temporary stopgap to a larger issue. Furthermore, investors focused in on upcoming Greek elections and how the Spanish bailout will actually be paid for as reasons to be bearish starting the new week.

Thanks to this sentiment, all the major benchmarks were down on the day led by a 1.7% loss in the NASDAQ. Meanwhile, the Dow and the S&P 500 both lost on the day too, losing, respectively, 1.1% and 1.3% in the session.

The biggest losses were in the financial and tech sectors, while red was also seen throughout the industrial segment as well. Utilities managed to hold up pretty well, while a similar performance was seen in the telecom, healthcare and consumer segment staples to start the week (Three Great European ETFs Beyond Germany).

One of the few winners on the session was the U.S. dollar as the Dollar Index rose above the $82.5 mark led by a strong performance against the euro and the resource currencies. This helped to push investors back into T-bills as the 10-year yield fell to 1.6% while the 30-year slumped to a yield of 2.72%.

Commodities were another segment of weakness as virtually all commodities were in the red. The biggest losses came in the energy space led by a 3% slump in WTI oil and a 4.1% slide in natural gas. Beyond these, weakness was also seen in softs, although gold and silver did manage to stay in the green thanks to the turmoil (see For Europe ETFs, It Is Hard to Beat Switzerland).

ETF trading was surprisingly modest across a variety of products as most finished in line with average volume levels. Investors did see some outsized interest in broad foreign ETFs, commodity funds and a host of leveraged products to open up the week.

In particular, investors saw a decent amount of interest in the consumer discretionary space and especially in the case of the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD). The product usually sees a paltry volume below 15,000 shares but experienced a massive spike to just over 344,000 shares during Monday trading (see Alternative ETF Weighting Methodologies 101).

The vast majority of this volume came thanks to a nearly quarter of a million-share block that traded in the morning leaving much of the day void of trades. Investors also saw outsized volume levels in other products in the space but none on par with what RCD saw, suggesting that the equal weight methodology was the way to tackle the space for many investors to start what looks to be a rocky week of trading.

Another ETF that experienced a boost in trading activity to start the week was the pharma sector, best represented by the SPDR S&P Pharmaceuticals ETF (XPH). The product usually sees volume of about 90,000 shares, but saw a spike to just over 1.3 million shares during today's session (see Forget Big Pharma: It Is Time for a Biotech ETF).

The volume across the pharma space was high as investors sought exposure to perceived safe havens, although this ETF fell along with the broad market to start the week. Interestingly, a good chunk of the volume during the day was due to a 300,000-share block in the morning session, although there was reasonable activity in the final half hour as well.

Seemingly, some investors are looking to pharma as a more defensive way to play the crisis, however, only time will tell if this is the way to attack the markets at this difficult time.

Eric Dutram
Zacks Investment Research

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