Trending on ETF Database: Markets Stand Still as Central Bankers Gather in Wyoming

There was no central theme this week, except perhaps for the presence of three assets sensible to interest rates – namely the U.S. dollar, mortgage-backed securities and inverse bonds, all situated on the bottom of the list. Further up on the list, telecom ETFs have taken first place, followed by semiconductors. Both assets have outperformed the broad market lately.

Telecommunication stocks have claimed first place on this week’s list for no obvious reasons. Telecom ETFs have seen their traffic increase over 70% this week compared to the same period a week ago, despite a sluggish performance in the past five days. For example, iShares U.S. Telecommunications (IYZ A+) has slumped 0.22% since last Thursday, but is up 10.63% since the beginning of the year.

Telecom stocks have posted a better performance than the broad market year-to-date and over the past twelve months, as many of these defensive stocks were attractive for their stable dividends. The two largest U.S. telecom companies, AT&T (T) and Verizon (VZ), which make up a fifth of iShares U.S. Telecommunications, each pay an annual dividend of more than 4%. Indeed, these two stocks have outperformed the telecom ETF, with Verizon jumping nearly 14% since the beginning of the year and AT&T soaring more than 18%.

Whether this outperformance will continue depends on the companies’ abilities to innovate over the long-term and the Federal Reserve’s actions in the near term. In no small part telecom stocks have been boosted by the Fed’s decision to delay an interest rate hike. The lack of action from the Fed prompted investors to search for better riskier yields in defensive stocks, including telecom firms. Over the longer term, however, the companies face challenges from new powerful entrants, such as Google (GOOGL), but also from startups strictly focusing on the emerging Internet of Things market. The largest carriers are counting on the IoT for the next wave of growth.

Semiconductors stocks have taken the second spot on the list, not far behind telecom, with a 67% increase in viewership over the past week. Semiconductors have performed even better than telecom stocks over the past period. For instance, iShares PHLX Semiconductor (SOXX A-) has risen 0.83% since last Thursday, extending year-to-date gains to as much as 20%.

The reason for such an outstanding performance is excellent earnings results for the latest quarter reported by some industry giants, including Intel (INTC), Qualcomm (QCOM) and Nvidia (NVDA). The three companies beat or posted earnings in line with analysts’ estimates. Turning to the smaller capitalization semiconductor companies, there is a full-fledged consolidation process underway, as many players are desperate for synergies and cost savings. Just recently, Analog Devices agreed to acquire Linear Technology in a deal worth $14.8 billion, while a bit earlier Japan’s Softbank announced plans to take over British-based ARM Holdings.

ETFs benefiting from rising bond yields have had a bad year so far, with interest rates hovering near record lows. Inverse Bonds have seen their viewership increase nearly 63%, closely behind semiconductors. iPath US Treasury 10-year Bear (DTYS B+) has continued to flounder over the past five days, down 3.80%, extending year-to-date losses to as much as 41.29%.

The future performance of these ETFs largely hinges on one big economic variable – inflation. Low inflation in the U.S. and across the developed world has emboldened central banks to launch unprecedented monetary stimulus measures, boosting bonds of all stripes. Although the Federal Reserve has terminated its asset-buying program long ago, low interest rates and subdued inflation have kept yields in check, with the 10-year Treasury notes returning only 1.5%.

Going forward, inverse bonds are hardly expected to perform any better, given that inflation for the most recent month was 0%. The Federal Reserve’s minutes for July revealed that all policymakers agreed there was no risk of inflation running amok anytime soon, suggesting they will not hurry in accelerating the interest rate cycle.

The U.S. dollar has taken fourth place on our weekly list, with a 40% increase in traffic. The greenback has been somewhat volatile lately, moving sideways, as investors await a clearer signal from the Federal Reserve about its plans to raise interest rates. PowerShares DB US Dollar Index (UUP B) has risen slightly over the past week, 0.12%, but it is still down 4.48% since the beginning of the year.

Volatility in the dollar is expected on Friday, when Federal Reserve’s Janet Yellen is due to speak at the annual Jackson Hole symposium. Although the most powerful central bankers gather to exchange ideas on economics, they could drop hints about the future monetary policy. As of now, the Fed is not expected to raise interest rates soon, making the dollar a poor investment. A subdued inflation report for the latest month proved another headwind for the greenback.

Mortgage-Backed Securities are last on our weekly list with a 24% rise in traffic, despite a somewhat weak performance lately. For example, iShares MBS (MBB A) has jumped 0.15% in the past five days, extending year-to-date gains to 2.14%.

Although the low interest rates should have boosted the MBS market, many of the instruments are shunned by investors because of their link to the financial crisis. The underlying fundamentals, however, look strong, with the housing industry in good health. New home sales are continuing to rise. In July, about 654,000 homes were sold on an annualized basis compared to the downwardly revised 582,000 in the previous month.

This week the outperformance of telecom and semiconductors ETFs have attracted our readers. Semiconductors ETFs have performed better than telecom ETFs, but the latter provides better yields and are more stable. Meanwhile, mortgage-backed securities, the U.S. dollar and inverse bonds, all sensitive to interest rate movements, are expected to become volatile over the next few days as central bankers descend on Wyoming for the annual Jackson Hole symposium.

By analyzing how you, our valued readers, search our property each week, we hope to uncover important trends that will help you understand how the market is behaving so you can fine-tune your investment strategy. At the end of the week, we’ll share these trends, giving you better insight into the relevant market events that will allow you to make more valuable decisions for your portfolio.