On September 13, the Federal Reserve announced it would engage in additional purchases of mortgage-backed securities while pledging to keep interest rates low through at least mid-2015. That amounted to the third round of quantitative easing so many traders and investors were dying to hear about and a market rally was ignited in the process.
Now, nearly two months since the Fed unveiled QE3, many of the most obvious ETF beneficiaries of the program have given up their gains. ETFs ranging from equity-based energy funds to those tracking mortgage agencies have tumbled, leading investors to wonder if QE3 will have any positive impact at all.
Not all is lost as the following QE3 ETF plays have held up quite nicely following the announcement. Perhaps that is a sign of more gains to come.
iShares MSCI All Peru Capped Index Fund (EPU) The lone ETF exclusively devoted to Peru was anointed an ideal QE3 play because Peru is a major producer of gold and silver. Monetary easing debases currencies, in this case the dollar, and gold is denominated in dollars.
The prediction about EPU being a valid QE3 ETF proved accurate as the fund rallied in the days leading up to September 13 and on the announcement itself. EPU would take a peak over $45 following the QE3 news and while it is slightly below that level today, the fund has held onto the bulk of its QE3-induced gains. Now, EPU looks like a credible play with which to avoid the post-election fallout in the U.S..
Consumer Discretionary Select Sector SPDR (XLY) One of the desired intents of quantitative easing is to spur economic activity and to get consumers feeling good about the economy. That means XLY and other discretionary ETFs were bid up leading up to and following the announcement. To be fair, XLY is trading lower today than where it was on September 13.
However, the fund has held up better than other obvious QE3 sector plays such as oil ETFs and XLY has found support at $46. Risk takers can buy XLY at current levels and reap the rewards of a potentially robust holiday shopping season. Averting the fiscal cliff will also be a positive catalyst for XLY and its rivals.
Global X Silver Miners ETF (SIL) Any of the equity-based mining ETFs would have been included on a list of QE3 winners and SIL is no exception. With a beta over 2.2, market-moving monetary stimulus is like a dream come true for an ETF such as this one.
The downside of SIL's high beta ways is that the fund is highly volatile and vulnerable to waning enthusiasm for programs such as QE3. Well, it should be noted SIL trades slightly lower today than where it resided immediately following the Fed's September 13 announcement. However, there is more to the story.
Not only is SIL still within striking distance of its post-announcement highs, since September 13 the ETF has sharply outperformed the following QE3 winners: The Market Vectors Gold Miners ETF (GDX), the Materials Select Sector SPDR (XLB) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
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