5 Sector ETFs to Make the Most of the U.S.-China Trade Deal

In the latest trade development, the United States and China have agreed to substantially roll back tariffs on each other’s goods for an initial 90-day period. Under the agreement, the United States will reduce tariffs on Chinese goods from 145% to 30%, while China will lower its tariffs on American imports from 125% to 10%.

The move has further bolstered optimism in the stock market, which has been riding higher on trade deal hopes over the past month. The announcement follows a weekend of intensive trade negotiations in Geneva, Switzerland, between officials from the world’s two largest economies. 

All three major indices are set to gain, with the tech-heavy Invesco QQQ QQQ expected to see the largest gains. Some sectors are likely to make the most of the U.S.-China trade deal.

Sectors & ETFs Poised to Benefit

Semiconductor

Semiconductor stocks are likely to benefit from easing trade restrictions. Improved access to Chinese markets and supply chains can enhance profitability and innovation. iShares Semiconductor ETF SOXX, having a Zacks ETF Rank #1 (Strong Buy), could be an intriguing option. It follows the NYSE Semiconductor Index and offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors. iShares Semiconductor ETF has amassed $11 billion in its asset base and trades in a volume of about 6.5 million shares a day. The product charges a fee of 35 bps a year from investors.

Manufacturing

The reduction in tariffs is expected to revitalize the manufacturing sector, particularly for companies involved in industrial machinery, vehicles and steel. Lower trade barriers can lead to increased exports and a more competitive pricing structure. The Industrial Select Sector SPDR XLI, which targets the broad industrial sector, could see positive impacts from this development. The fund follows the Industrial Select Sector Index and holds 78 stocks in its basket. It is well spread out across sectors, with aerospace & defense, machinery, and ground transportation making up for a double-digit share each. Industrial Select Sector SPDR is the most popular ETF with AUM of $19.4 billion and an average daily volume of around 10 million shares. It charges 8 bps in fees per year and has a Zacks ETF Rank #1 (read: ETFs Surge on US Stocks' Best Week Since 2023: What's Next?).

Energy

Energy companies stand to gain from the agreement, as reduced tariffs can lead to increased exports of oil and gas to China. This is particularly beneficial for U.S. energy producers looking to expand their market reach. Energy Select Sector SPDR Fund XLE, offering broad exposure to the energy sector, may experience growth. It is the largest and most popular ETF in the energy space, with AUM of $26.1 billion and an average daily volume of 19 million shares per day. It tracks the Energy Select Sector Index and holds 23 securities in its basket. Energy Select Sector SPDR charges 8 bps in annual fees and has a Zacks ETF Rank #1 (read: Energy ETFs in Focus as Exxon, Chevron Beat Earnings Estimates).

Retail

Retailers importing goods from China may experience cost reductions due to lower tariffs, potentially leading to lower prices for consumers and improved profit margins. VanEck Vectors Retail ETF RTH could be a solid pick. It provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index, which measures the performance of the companies involved in retail distribution, wholesalers, online, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. VanEck Vectors Retail ETF has amassed $239.6 million in its asset base and charges 35 bps in annual fees. It trades in an average daily volume of $7,000 shares and has a Zacks ETF Rank #3 (Hold).

Agriculture

The agricultural sector is anticipated to recover as China commits to increasing imports of U.S. farm products. This includes commodities like soybeans and pork, which had seen reduced demand during the trade tensions. iShares MSCI Agriculture Producers ETF VEGI provides global exposure to the companies that produce fertilizers and agricultural chemicals, farm machinery, packaged foods, and meats by tracking the MSCI ACWI Select Agriculture Producers Investable Market Index. Holding 130 stocks in its basket, iShares MSCI Agriculture Producers ETF has $93 million in AUM and around 22,000 shares in an average daily volume. It charges 39 bps in fees per year from investors and has a Zacks ETF Rank #3 (see: all Materials ETFs here).

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