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Aug. 14, 2021, 9:36 a.m. EDT

Stock-market investors are banking on this sector in the COVID recovery, while JPMorgan steps up its ETF game

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By Mark DeCambre

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“The XLU historically has been a bond proxy, of course. But its correlation to the 10 Year Note largely has fallen apart in 2021. Whether we blame the Fed for this or not, we shouldn’t ignore the move just because rates aren’t confirming it,” Cappelleri writes.

We’ll have to see how that plays out if yields pick up a little steam.

Thinking small?

Jefferies’ equity strategist Steven DeSanctis thinks that there’s further value in small-caps, even as inflows into small-cap ETFs have cooled in recent weeks. Here’s his thinking on the subject in a research note dated Wednesday.

“Inflows to Small-cap ETFs may have peaked in mid March and affected performance…But we think institutional investors are interested in size segment. For every dollar coming into Small, 45 cents goes to passive, creates tailwind for smaller Smallcaps,” he writes.

“If value continues to outperform, valuations drives performance,” he writes. Some of the most popular and largest small-cap ETFs include the iShares Core S&P Small-Cap ETF /zigman2/quotes/208653303/composite IJR +1.25% , the iShares Russell 2000 ETF /zigman2/quotes/209961116/composite IWM +1.31% and Vanguard Small-Cap ETF /zigman2/quotes/201669247/composite VB +1.30% , and the Vanguard Small-Cap Value ETF /zigman2/quotes/203042913/composite VBR +1.64% .

DeSanctis and his crew see small outperforming large-caps by 5.50 percentage points in the next year. 

Building on infrastructure

After the U.S. Senate passed a roughly $1 trillion infrastructure package with broad bipartisan support Tuesday, the immediate question has been: do ETFs that have been used to bet on infrastructure plays still have room to run?

A popular exchange-traded fund that offers exposure to stocks that would likely benefit from an infrastructure bill , the Global X U.S. Infrastructure Development ETF /zigman2/quotes/200238288/composite PAVE +2.09% has climbed 3.7% so far this week and 5.7% within the past 30 days, FactSet data show.

Other areas, like renewable energy and electric vehicles haven’t seen a recent pick up. Invesco Solar ETF /zigman2/quotes/210041821/composite TAN +1.03% was down 1.1% on the week, while Global X Autonomous & Electric Vehicles ETF /zigman2/quotes/208908060/composite DRIV +1.51% was virtually flat so far this week. TAN, referring to the solar ETF’s ticker symbol, is down 17% year-to-date, while the EV ETF is up 21% so far in 2021.

There is still some question about how quickly the House will act on the bill though.

Ally Invest’s Lindsey Bell says that there may still be upside if the bill is ultimately signed by President Joe Biden.

“Sector ETFs that have cooled in recent months on the back on growth uncertainty, related to the industrials, materials, construction equipment, semiconductors, and electric vehicles arenas could see a boost as the bill gets closer to President Biden’s desk,” she wrote.

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