ETFs
ETFs to benefit from best earnings growth in two years – May 9, 2024
American companies are experiencing their best earnings season in almost two years. With 80% of S&P 500 companies having already reported their results, the index is on track to record a record. 5% growth of first quarter earnings per share by FactSet. This is the largest year-over-year increase since the second quarter of 2022 and higher than the 3.2% growth expected by analysts before the start of the season (read: Time to Tap Wall Street ETFs on Earnings Strength?).
According to Earnings Trends According to the report, the picture emerging from the first quarter earnings season continues to be one of continued improvement and resilience, with a slight acceleration in the pace of earnings growth and an increase in estimates for periods to come. Total profits for the 440 S&P 500 members that reported first-quarter results were up 5.0% from the same period last year, with revenues up 4.2%, including 78 .0% beat EPS estimates and 60.9% beat revenue estimates.
Earnings and revenue growth rates represent a slight acceleration compared to other recent periods. Although the EPS exceedance ratio is slightly above the 5-year average for this group of companies, the revenue exceedance is significantly below the 5-year average and is at the low end of the range. Looking at the first quarter as a whole, S&P 500 earnings are now expected to be up 6.2% from the same period last year, driven by revenues up 4.3% (read : 5 Stocks Leading the S&P 500 ETF’s Latest Rally).
Earnings strength appears widespread, with 10 of the 16 Zacks sectors likely to benefit from positive earnings growth. The technology sector remains a key growth driver with expected profit growth of 27.3%, followed by consumer discretionary (24.8%), retail (24.7%), construction (12.6%) %), business services (12.9%) and finance (12.1%). Other sectors, such as utilities, aerospace, consumer staples, and industrial products, are also seeing notable year-over-year growth.
Given the strong earnings momentum, many investors would like to bet on earnings-oriented ETFs.
Why profit-oriented ETFs?
Earnings are the most important driver of a stock’s performance over a longer period of time. Indeed, profits are the lifeblood of any business, determining its capacity and strength as well as its growth prospects. Profit-generating companies typically attract investors’ attention due to their strong financial position and growth potential, leading to higher stock prices.
Thus, earnings-weighted ETFs have the potential to rise relative to any other product during the earnings growth period. Therefore, moving towards this key indicator is currently a wise choice. For investors looking to do this, there are a small range of US-focused ETFs that accomplish this task.
Below, we’ve highlighted a few ETFs that could be great choices for investors looking to make money, focusing on one of the most important aspects of stock investing.
WisdomTree US LargeCap Index (PES – Free report)
The WisdomTree US LargeCap Index provides exposure to profit-generating companies within the large-cap segment of the broader US stock market by tracking the WisdomTree US LargeCap Index. Holding 500 stocks in its basket, the fund is well distributed between each component, each holding less than 5.6% share. Additionally, the WisdomTree US LargeCap Index has exposure to a number of sectors, with information technology, financial services, communications services and healthcare each taking double-digit exposure.
The ETF has amassed $854.9 million in its asset base and charges 8 basis points in annual fees. Volume is light, trading around 50,000 shares per day. EPS has a Zacks ETF Rank #3 (Hold) with a Medium Risk Outlook (read: What will the election bring for Wall Street ETFs in 2024?).
WisdomTree American Mid Cap Fund (EZM – Free report)
The WisdomTree US MidCap Fund tracks the WisdomTree US MidCap Index, providing exposure to 546 profit-generating mid-cap companies. The fund is widely distributed between each component since each holds less than 1% of the assets. It also has diversified exposure to various sectors such as financial services, industrials and consumer discretionary, which each receive a double-digit allocation.
The WisdomTree US MidCap Fund charges 38 basis points in fees per year while trading an average daily volume of nearly 24,000 shares. It has $796.5 million in assets under management and a Zacks ETF Rank #3 with a Medium Risk Outlook.
WisdomTree American Small Cap Fund (EEA – Free report)
The WisdomTree US SmallCap Fund targets profit-generating small-cap companies by tracking the WisdomTree US SmallCap Index. Holding 902 stocks in its basket, it offers a good balance between different stocks since each company holds less than 1% of the shares in the basket. From a sector perspective, financials hold the largest share with 25.6% of assets, while industrials, consumer discretionary and information technology round out the next few spots with double-digit exposure. each.
The WisdomTree US SmallCap Fund has amassed $626.6 million in its asset base and sees moderate volume of around 29,000 shares per day. It charges 38 basis points in annual fees and has a Zacks ETF Rank #3 with a Medium Risk Outlook.
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