IAI iShares US Broker Dealers and Securities Exchanges ETF

US stocks had an incredible run last year, as investors focused mainly on the massive support by the Fed, largely ignoring lackluster earnings. But as economic growth has started showing clear signs of gaining momentum, the Fed has decided to gradually withdraw its support from the market.

As investors prepare for the post-QE world, corporate earnings will be back in focus. The fourth quarter earnings season has now “unofficially” started, with Alcoa reporting last Thursday. (Read: Best ETF Strategies for 2014)

Per Zacks Earnings Trends, earnings for S&P 500 companies are expected to increase 6.3% from the same period last year, the strongest quarterly growth of 2013. Finance sector accounts for a big part of the Q4 growth with total earnings for the sector expected to be up +20.1%, thanks mainly to easy comparisons.
 
Total earnings growth expected outside of Finance, is just +3.5%. At the same time, some sectors/industries are expected to report better earnings than others. Now may be a great time to consider investing in some of the sectors/industries ETFs that are expected to report excellent earnings growth in the coming weeks. (Read: 5 ETF Predictions for 2014)
 
Below we have analyzed three sectors/industries that look poised to benefit from the earnings season and Zacks top ranked ETFs to play them.

Transportation--iShares Dow Jones Transportation Average Fund (IYT)

Transportation sector is expected to report earnings growth of 17.5% during Q4, after 13.2% growth in Q3. Growth rate is expected to be in double digits for 2014 and 2015 as well.

With an asset base of $756 million, IYT is the most popular ETF in the Transportation sector.
The asset base is invested in 21 holdings, with Union Pacific, FedEx and Kansas City Southern being the top three holdings. (Read: 3 Hot Sector ETFs for 2014)

In terms of industries, the product has highest exposure to railroad industry—accounting for almost 30% of the asset base. Delivery services, Airlines and Trucking and airlines also get double-digit allocations.  

Railroad stocks had a strong performance in 2013 and have started the new year on a sound note. According to American Association of Railroads overall U.S. railroad traffic was up 3.2% in the first week of 2014, compared with the same period in 2013.

The fund charges expense ratio of 45 basis points and had an excellent return of 41.2% in 2013. Continued pick-up in the economy and strong uptrend in e-commerce sales should keep this fund on the bullish trend this year as well.

IYT is a Zacks Rank # 2 (Buy) ETF.

Financials--iShares Dow Jones US Broker-Dealers ETF (IAI)
 
Total year-over-year earnings growth for the Finance sector is driven mainly by easy comparisons, particularly for Bank of America and the insurers.  Looking at expected earnings for various industries/sub-industries within the Financials sector, “investment banks and brokerages likely generated investment fee growth in Q4 from higher asset inflows and equity prices, which increased total assets under management” per S&P Capital IQ.
 
IAI tracks the Dow Jones U.S. Select Investment Services Index. The product currently holds 22 securities and invests almost 60% of total assets in its top 10 holdings. Goldman Sachs, Morgan Stanley and Charles Schwab are the top three holdings of the fund.

Going forward, the market will probably be more volatile this year resulting in higher trading volumes, which benefit brokers and exchanges. These segments also get a boost from higher interest rates.

The fund has so far attracted $229.7 million in AUM and charges 45 bps in fees per year from investors. The product had an excellent performance in 2013, with a whopping 65.6% return.
 
The ETF currently has a Zacks Rank # 2 (Buy).
 
Autos--First Trust NASDAQ Global Auto Index Fund (CARZ)
 
Autos sector is expected to report 15.8% earnings growth for Q4, followed by growth of 14.9% and 22.7% for 2014 and 2015 respectively.
 
2013 was a great year for US auto sales, with an 8% annual increase in sales. Going forward, an improving U.S. economy, and healing labor markets would encourage more households to spend on new cars.

Further, improving conditions in Europe and some of the major emerging markets are expected to result in higher car sales globally.

CARZ tracks the NASDAQ OMX Global Auto Index, The product made its debut in May 2011 and has managed to attract $52.7 million in assets so far, It holds 38 securities in its portfolio but is top heavy, with the top 10 firms accounting for about 60% of the assets.  Daimler, Volkswagen, Toyota and Honda and Ford are the top four holdings.
 
In terms of country exposure, Japan takes the top spot at 35% while Germany and the U.S. also get double-digit allocations, 25% and 20% respectively.  
 
The product charges 70 bps in annual expenses and returned 36.9% in 2013.

CARZ currently has a Zacks ETF Rank # 2 (Buy).  
 
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FT-NDQ GL AUTO (CARZ): ETF Research Reports
 
ISHARS-US BR-D (IAI): ETF Research Reports
 
ISHARS-TRAN AVG (IYT): ETF Research Reports
 
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