Though most investors will be focused on comments from Fed Chairman Ben Bernanke and our U.S. GDP results, there will be another name to remember as we head into the weekend; Irene. Now that we are midway through hurricane season, which lasts from the beginning of June through the end of November, the U.S. has its first major storm system working its way through the Eastern coastline, threatening millions of citizens along the densely populated Northeast. Numerous areas have already instated a mandatory evacuation in order to protect citizens from what is predicted to be severe flooding as well as intense wind. [see also Five ETFs To Watch Ahead Of Ben Bernanke’s Jackson Hole Speech].
Irene has been causing quite the fuss over the last few days, as it is exhibiting an atypical pattern. Often, a hurricane will be fast moving as it reaches up into higher latitudes, but Irene is not, “which means it will be a powerful, slow-moving storm that could be doing a lot of damage” said Dennis Feltgen, a spokesman for the National Hurricane Center. “The Category 3 hurricane was expected to hit North Carolina’s Outer Banks on Saturday afternoon with winds around 115 mph. Forecasters predict it will chug up the Eastern Seaboard, dumping rain from Washington, D.C., to New York City before weakening to a tropical storm by the time it reaches Boston” writes NPR.
If Irene takes its projected path along the East coast, it will be the first hurricane to do so in nearly seven years, which may be part of the reason that so many are concerned. While the majority of the south and Gulf area are relatively well prepared for these types of storms, those in the Northeast and Mid-Atlantic are not, as many assume that hurricanes are a problem for those further south. This attitude, combined with heavy rains earlier in the summer and the pounding from Irene, could create a disastrous situation of heavy flooding and large-scale damage.
While it will not be the lead market mover on the day, Irene will certainly have an impact on numerous investments. Below, we outline three ETFs to carefully monitor as this storm makes its way across U.S. territory:
United States Natural Gas Fund LP (UNG)
UNG is one of the most popular ETFs, changing hands around 12.3 million times daily with a market cap just over $1.5 billion. This ETF is a futures-based product that solely offers exposure to front-month natural gas futures, a commodity utilized by a number of traders for speculative plays. UNG’s performance is very closely tied to the weather, as it has a major affect on the amount of natural gas used in homes and businesses across the country. In the case of Irene, this system will likely be bad news for this ETF, as any kind of evacuation or power loss for cities like Philadelphia, New York, D.C., and Boston (all of which are in Irene’s projected path) will lead to significantly less natural gas being consumed, driving down prices overall. With that being said, a reduction in the storm’s power or low levels of damage could lead to a modest increase in fuel usage, potentially helping UNG to weather the storm [see also ETF Price Cuts: NAGS, EPI Slash Fees].
Airline ETF (FAA)
This ETF, from Guggenheim, seeks to replicate a modified equal-dollar weighted Index designed to measure the performance of highly capitalized and liquid U.S. and international passenger airline companies identified as being in the airline industry. Top holdings in the fund include names like Southwest, Delta, United, and Singapore Airlines. FAA features a 61% exposure to U.S. airlines, meaning that a significant segment of this ETF will be impacted by Irene, not to mention all of the international airlines that do a significant amount of business along the East Coast. Similar to UNG, FAA is at the hands of the weather, as the hurricane will ground thousands of flights, disrupt travel across the country, and lead to lost profits for these airlines. With a projected path that could hit major airports like John F. Kennedy, LaGuardia, Ronald Reagan, Dulles, and Logan, look for FAA to take a hit over the next few days, assuming the storm follows its predicted landfall in the US [see also Checking In On The Airline ETFs: FAA vs. FLYX].
SPDR KBW Insurance ETF (KIE)
KIE tracks an index that invests in various insurance companies listed on U.S. exchanges. As such, this ETF features names like MetLife, Aflac, and Prudential in its top holdings. Though it pays out a good dividend yield of 1.5%, this fund has lost a dismal 21.2% on the year. KIE will be an ETF to monitor not only during the storm, but for some time after, as a number of citizens and business make claims to repair damaged property. With this in mind, KIE has will likely feel downward pressure as its underlying holdings will likely have to pay out a significant number of claims over the next several months to help rehabilitate the impacted areas. Furthermore, since storms of this magnitude are so rare in the area, premiums paid in by property holders are likely to be easily dwarfed by the damage of the storm, adding insult to injury for many insurers with significant operations in the area [see all the insurance ETFs here] .
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Disclosure: No positions at time of writing.