Three ETFs To Watch This Week: GDX, PPA, EPU

by on July 25, 2011 | ETFs Mentioned:

This past week was another wild one for markets as a number of earnings reports combined with debt crises to create a very choppy couple of days. While worries over a debt deal in the U.S. and concerns over a European debt contagion may have weighed on markets, most equities managed to finish the week higher for the most part, boosted by extremely solid performances in Tuesday and Thursday trading. Tech earnings were especially strong as robust figures from IBM and unsurprisingly, Apple, helped to carry sentiment for this important corner of the market. Additionally, the transports, which many look to for strength coming out of a weak patch, also posted strong results as both CSX and Union Pacific beat estimates on higher shipping volume and price increases. Meanwhile, commodities also had a solid week as a weaker dollar, higher demand prospects, and continued uncertainty, helped to lift most resources higher. In fact, gold finished the week close to the $1,600/oz. mark while oil trended near the $100/bbl. level, demonstrating that commodity investing is alive and well in this current environment. 

This week, investors are likely to once again focus on earnings season as very few economic data releases look to cross the wires over the next few days. In fact, only the Bank of New Zealand gives its interest rate decision among major central banks while economic data is restricted to durable good orders and GDP growth in the U.S. Internationally, things aren’t much more active as investors will likely hone in on British GDP growth figures and euro zone and Australian CPI reports. In terms of earnings, the week is stuffed full of important companies from a wide variety of industries, potentially helping to set the tone for the rest of summer, or at the very least, until the debt ceiling deadline in early August. Among the important companies reporting this week are; Amazon, ExxonMobil, Barrick Gold Corp, Chevron, UPS, and Ford, just to name a few. With this backdrop, investors should look for the following three ETFs to be in for an active week:

Market Vectors TR Gold Miners ETF (GDX)

Why GDX Will Be In Focus: Prices of the yellow metal have been extremely volatile as of late as confidence in the euro zone changes by the hour. Recent developments, however, have helped to increase demand for gold and gold producing equities, pushing GDX up 6.8% over the past two weeks and close to 12.4% over the past month alone. Yet, these robust increases will likely be tested later this week when one of the largest gold mining companies in the world, Barrick Gold (ABX), gives its quarterly earnings report. In the previous quarter, ABX reported earnings of $1.01 a share on revenues of $3.1 billion, largely boosted by higher cash margins thanks to a soaring gold price. Gold cash margins increased 32% from the year ago period in the first quarter up to $952/oz. and investors will likely look for further increases to this margin during this report, especially given gold’s ascent to the $1,600/oz mark. Additionally, investors will also look for comments regarding ABX’s hedging policies as currently, the company is unhedged, suggesting that the company believes gold prices will rise. If ABX hints at plans to bring back the hedge, it could be a negative for gold prices and may cause prices of the gold miners to tumble on the week [Seven Surprising ETF Holdings: Why Investors Should Always Look Under The Hood].

PowerShares Aerospace & Defense Fund (PPA)

Why PPA Will Be In Focus: Earnings look to dominate the headlines for this fund over the next few days as several of the country’s largest aerospace and defense firms give their quarterly updates. In addition to Raytheon and Lockheed Martin, two companies that make up top ten allocations of PPA, the Boeing Company (BA) also gives its update when it reports before the bell on Wednesday. Analysts are currently looking for the company to report earnings of 96 cents a share on revenues of $16.41 billion, numbers that compare relatively unfavorably with the year ago period in which the company put up earnings of $1.06 on revenues of $15.57 billion.

While the projected revenue increase is encouraging, the numbers suggest that BA is losing some of its edge regarding profitability, likely a concerning factor for investors. Additionally, analysts will likely hone in on the company’s forecast for the next few months as well, especially given recent orders for more planes, the government debt situation, and the continually-delayed 787 Dreamliner project. Should the 787 finally start to deliver soon it could help to ease a lot of concerns that investors may have over the company and could potentially save BA even if earnings are not as robust as some may have initially hoped [The Next Frontier For Aerospace & Defense].

iShares MSCI All Peru Capped Index Fund (EPU)

Why EPU Will Be In Focus: This could be a huge week for the Peru ETF for a couple of reasons. First, the biggest component of the fund, Buenaventura Mining Company (BVN), gives its quarterly earnings report after the bell on Tuesday.  The company is a major miner and explorer of precious and industrial metals in the country and the firm makes up close to 20% of the product’s total assets. Furthermore, since close to 44% of EPU’s assets go towards basic materials, any shifts in guidance or outlook for the rest of the year could heavily impact the rest of the sector as well, potentially making it a rocky week for this fund.

Second, and probably more importantly, the country’s 97th president takes power on July 28th, potentially shaking up markets in the process. That is because, despite the best efforts of the President-Elect Ollanta Humala, many in the market still consider him to be a ‘left-wing’ politician that is closely aligned with the likes of Chavez and Morales. The test for Humala will be to show that he is more like the former president of Brazil, Lula, who was regarded as left-of-center but still relatively pro-business. Investors should also keep in mind that on the day that Humala won the runoff election, EPU sank by over 10% and when he promised to keep in place the current central bank chief, markets rallied by over 3%. This shows that the market is still uncertain about Humala’s intentions and that it could be a very tumultuous week for this country-focused ETF [see Peru ETF Continues To Bounce Back].

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Disclosure: No positions at time of writing.