According to its August Atlantic Hurricane Outlook, the National Oceanic and Atmospheric Administration (NOAA) expects a “near- to below-normal Atlantic hurricane season as the calming effects of El Niño continue to develop.” After getting off to a very mild start (there has been little activity since the official June 1 start of the season), it appears that as we enter the historical peak period, increased signs of activity are indicating it might not be smooth sailing ahead. Early Wednesday, Hurricane Bill, the first named hurricane of the season, strengthened to a dangerous Category 4 storm with top winds near 135 miles per hour, reminding coastal residents and Wall Street investors alike that even in a mild hurricane season, it only takes one storm to wreak havoc.
While Bill’s most significant threat could be to Bermuda, the path of a storm more than 450 miles offshore remains largely unpredictable, and landfall on the eastern coast of the U.S. remains a distinct possibility. As we gear up for yet another unpredictable and terrifying hurricane season, here’s a look at three ETF plays that could see a lot of attention over the coming months:
- iPath Dow Jones AIG Sugar Total Return Sub-Index ETN (SGG): Following news of a dramatic letter sent from major food companies to the Obama administration last week, sugar prices have been in focus a great deal this year. Prices have already skyrocketed due to a “perfect storm” of supply shortages around the globe. As U.S. sugar cane farmers begin their harvest season, landfall near Florida or Louisiana could be devastating, further tightening an already limited supply. SGG, which has peeled back from recent highs over the past few trading sessions, had jumped more than 1.5% in early Wednesday trading.
- PowerShares Dynamic Oil & Gas Services Portfolio (PXJ): Oil and gas services providers are perhaps some of the most interested observers of hurricane season, dreading the arrival of storms that force evacuations of rigs and suspension of drilling. PXJ holds companies engaged in drilling and support activities, such as Cameron International Corp. and National Oilwell Varco. The companies that comprise PXJ are well diversified geographically (meaning that only a small portion of their operations could potentially be impacted by the Atlantic hurricane season).
- PowerShares Dynamic Insurance Portfolio (PIC): Insurance companies are, for obvious reasons, very interested in what’s happening 400 miles off the coast of Bermuda. Following the unprecedented devastation caused by the storms of 2005, investors are increasingly aware of the possibility of another “black swan” event for the industry. If however, the season turns out to be relatively mild (as is still predicted, despite Bill’s recent upgrade), insurance companies could turn out large profits. In addition to property and casualty insurers, PIC also holds firms engaged in disability and long term care insurance.
Disclosure: No positions at time of writing.