Hurricane Helps Or Hurts These Five ETF Sectors Most
Hurricane Sandy is expected to cost between $10 billion and $20 billion in damages — a far cry from the $110 billion toll from Hurricane Katrina of 2005, economists say.
As a whole, it may have little impact on the country’s $16 trillion gross domestic product. But it will likely hurt some sectors more than others and could even create a boom for others.
Here’s a look at five sectors and their ETFs that could feel the impact most.
Homebuilders: The seven-state region in Sandy’s path is home to nearly 284,000 total residential properties at risk of damage, according to CoreLogic. They’re valued at almost $88 billion. The U.S. housing sector had already been rebounding from the housing bubble and hurricane damage could boost rebuilding.
IShares Dow Jones U.S. Home Construction Index ( ITB ) has to rise another 117% just to recover its 2007 peak.
Airlines: Carriers have canceled nearly 9,000 flights because of Hurricane Sandy, according to FlightAware.com, an airlines and flight tracking firm. Other estimates put the number at 12,600 as of Monday afternoon. Hurricane Irene caused more than 10,000 flight cancellations.
Storm-related cancellation on the East Coast could cause business travel losses of up to 514,000 trips and $606 million in spending, according to the Global Business Travel Association. It estimates up to $58 million a day in travel spending losses for the 11 East Coast states affected.
Property-casualty insurers: Hurricane Sandy will cost the insurance industry $5 billion to $10 billion, or one to two times the impact of Hurricane Irene in late August 2011, according to James Shanahan, an equity research analyst at EdwardJones in St. Louis, Mo.
Despite the losses, the hurricane will have a positive impact because insurers will be able to raise premiums.AllState Corp. ( ALL ), which he covers, had already raised rates 7% to 9% annually the past four years, Shanahan said. Sandy shouldn’t be a major shock to insurers as catastrophic losses are already accounted or modeled in quarterly estimates.
The major insurance ETFs areKBW Insurance ETF ( KIE ),iShares Dow Jones U.S. Insurance Index (IAK) andPowerShares Dynamic Insurance Portfolio (PIC).
Gas and oil refiners: Pump prices are likely to rise as oil refineries shut down. Northeast oil refineries process a little less than 1 million barrels of oil per day, down from 1.6 million barrels a day in 2007. But the drop may be dampened by lower consumer demanded.
Major ETFs to watch areUnited States Gasoline (UGA) andiShares Dow Jones U.S. Oil & Gas Exploration & Production (IEO)
Consumers and retailers: The jury is out on this one. A drop in demand for clothes and vacations may be offset by increases in need for disaster preparedness and property replacement.
“While hurricanes and other natural disasters are extremely negative for wealth, they are usually positive for growth,” said Jason Schenker, president of Prestige Economics in Austin, Texas, “whether it is the last-minute run to hardware stores and supermarkets, or after-the-storm replacement of furniture, windows, cars, and other damaged durable and nondurable goods.”
The consumer was already stretched and unlikely to spend more, said Brian Frank, manager of the Frank Value and president of Frank Capital Partners with $25 million in assets under management. Folks in the U.S. are only putting 3.3% of their income into savings, as of September, so they don’t have much left over for discretionary spending.
ETFs to watch:SPDR S&P Retail (XRT) andConsumer Discretionary SPDR (XLY).
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