Three ETFs To Watch This Week: ITA, BBH, EWG

by on January 24, 2011 | ETFs Mentioned:

Equity markets finished mixed last week as the Dow managed to outperform both of its more broadly-allocated counterparts thanks to robust earnings reports from GE and IBM. Meanwhile, financials helped to push the S&P 500 down by about 0.8% on the week while the Nasdaq sank almost two percent thanks to ongoing worries across the technology sector, but especially with key component Apple which saw their beloved CEO Steve Jobs take another leave of absence to deal with cancer. Commodities also posted a rough week as gold saw its value tumble by close to $40/oz. from its mid week high and oil continued its slide after posting solid gains in the previous weeks. Meanwhile, in emerging markets, concerns over China and a possible rate hike continued to plague a number of sectors as many are growing increasingly concerned that this key engine of economic growth is likely to do its best to slow down its economy and crush inflation in the process.

This week, investors will have a tidal wave of earnings reports to digest as well as a number of key central bank meetings, including the Federal Reserve. Additionally, investors are likely to focus in on a number of key data releases as well including; durable good orders, U.S. GDP, and consumer confidence reports. As a result, U.S. equity markets could be in for yet another rocky week so investors should proceed with caution. Given this backdrop, we profile three funds that could be in for an especially active week thanks to key earnings reports in some of their most important component holdings:

iShares Dow Jones U.S. Aerospace & Defense Fund (ITA)

Why ITA Will Be In Focus: This fund sees seven of its top ten components report earnings this week suggesting that ITA and the defense industry at large could be in for a volatile period. Of particular concern to investors is likely to be the reports from United Technologies (UTX) and Boeing (BA), two companies which can set the tone not only for the industry, but for large portions of the American economy as well. Both companies are scheduled to report earnings on Wednesday suggesting that the mid week period will likely see the height of volatility for the fund. UTX is scheduled to report earnings of $1.29 a share on revenues of $14.75 billion while BA has an estimated EPS of $1.11 on revenues of $16.97 billion. Of particular concern to investors should be BA’s guidance on its much-delayed, but possibly gamechanging, 787 Dreamliner aircraft [also see The Next Frontier For Aerospace And Defense ETFs]. Any news regarding this important part of BA’s product lineup could help to move the stock significantly in the after-earnings period. In addition to these key DJIA components, investors should also note that the following components report earnings this week:

  • General Dynamics (6.1%) reports on Wednesday
  • Lockheed Martin (5.7%) reports on Thursday
  • Precision Castparts (5.6%)reports on Thursday
  • Raytheon (5.3%) reports on Monday
  • Level Three Communications (3.8%) reports on Thursday

iShares MSCI Germany Index Fund (EWG)

Why EWG Will Be In Focus: Thanks to a robust German IFO business climate reading, as well as a moderating debt situation in Europe, many are predicting the Germany economy to continue its leading role in Europe. The most popular fund tracking the German market, EWG, looks to be in focus this week as its top component, the industrial giant Siemens, reports earnings on Tuesday. The company makes up roughly 10.5% of the fund and the conglomerate will be especially in focus given the optimism over the German business climate and the robust earnings report from fellow industrial behemoth GE, so the earnings report by SI should put these trends to the test to say the least. The German company has already said that it will likely beat out net profit figures from last year while also posting higher sales as well. Investors should also focus in on the company’s various units which are “benefiting from a robust performance from operations closely linked to the economic cycle, such as its Osram lighting unit,” said Archibald Preuschat and Harm Luttikhedde in the WSJ. “While growth in its short-cycle business is expected to flatten in the second half of the fiscal year, spending on big-ticket products like high-speed trains has also shown further signs of improvement, underscoring the broad-based economic rebound from the slump of 2009.” No matter what happens with the earnings report later in the week, look for EWG to be a big mover given the high stakes of this announcement and the dependence of the German economy on high quality exports to power its impressive growth [see Five ETFs For A Tumbling Euro].

Merrill Lynch Biotech HOLDR (BBH)

Why BBH Will Be In Focus: The top component in BBH, and one of the leading biotech companies, Amgen (AMGN) reports earnings on Monday. The biotechnology giant is expected to report earnings of roughly $1.10 per share on revenues of $3.81 billion, which would compare favorably in terms of the year ago period in which the firm reported EPS of 92 cents, however, it would also represent zero revenue growth. A major problem for the company has been lackluster sales of its key drugs that fight anemia, as well as disappointing figures for a bone strengthening drug as well. Investors should pay particularly close attention to any changes in guidance for the new year regarding these key products of the company.

Additionally, another key component of BBH, Gilead Sciences (GILD) is also scheduled to report earnings this week. Consensus estimates for the company call for an EPS of 93 cents on roughly $2 billion in revenues. The company has seen solid sales in the previous quarter and some analysts are optimistic that this trend will continue into the Q4 earnings report as well as the new year. The two components combine to make up close to three-fifths of the fund’s total assets– AMGN makes up a 35.1% of the fund while GILD which makes up 23.9%– suggesting that it will be an interesting week for the biotechnology industry and BBH in particular [also read Is Your Biotech ETF A Leader Or A Laggard?].

[For more ETFs to watch, sign up for our free ETF newsletter.]

Disclosure: Eric is long ITA and EWG.