5 Best-Performing Sector ETFs of the Third Quarter

The third quarter of 2024 has been extremely volatile for the U.S. stock market. While recession fears, geopolitical tensions, fading AI craze and uncertainty surrounding the elections kept investors on edge, rate-cut optimism buoyed the stock market during the quarter. Investors shunned the technology stocks in favor of smaller companies and other sectors, which are bigger beneficiaries of Fed rate cuts. 

With just a trading day left to end the third quarter, the Dow Jones outperformed, rising 7.2%, while the S&P 500 Index and tech-heavy Nasdaq Composite gained 4.4% and 1.6%, respectively.

We have highlighted five top-performing ETFs from different sectors of the market that have led the way higher in the third quarter. These are SPDR S&P Telecom ETF (XTL Quick QuoteXTL - Free Report) , VanEck Office and Commercial REIT ETF (DESK Quick QuoteDESK - Free Report) , Themes Gold Miners ETF (AUMI Quick QuoteAUMI - Free Report) , iShares U.S. Home Construction ETF (ITB Quick QuoteITB - Free Report) and Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU Quick QuotePSCU - Free Report) .

After holding the rates at a 23-year high for 14 consecutive months since July 2023, Federal Reserve Chair Jerome Powell kicked off the new rate cycle era by initiating a 50 basis points cut in interest rates. This marked the first rate cut since 2020 to address slowing economic growth. The central bank projects two more rate cuts of 50 bps in its final two meetings this year, due in November and December. It also indicates another 100-bps rate cut next year and a 50-bps cut in 2026, which means four rate cuts in 2025 and two in 2026 (read: Fed Initiates Rate Cuts: Top-Ranked Growth ETFs to Buy). 

Lower rates generally lead to reduced borrowing costs for mortgages, credit cards and other consumer and business loans. This helps businesses to expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and boosts the stock market. Lower rates primarily benefit cyclical sectors like industrials, financials and consumer discretionary. Securities in capital-intensive sectors like telecom will also benefit from lower rates as businesses will face lower loan rates over time.  

Additionally, lower rates raise the yellow metal’s attractiveness when interest rates fall compared to fixed-income assets such as bonds, as the precious metal does not pay interest like fixed-income assets. 

Let’s dig into the details of the abovementioned ETFs:

SPDR S&P Telecom ETF (XTL Quick QuoteXTL - Free Report) – Up 33.2%

SPDR S&P Telecom ETF provides exposure to the telecommunications segment and follows the S&P Telecom Select Industry Index. It holds 40 stocks in its basket, with communications equipment making up 54.3% of the assets, while alternative carriers and integrated telecommunication services round off the next two spots with double-digit exposure each. 

SPDR S&P Telecom ETF has amassed $99.5 million in its asset base and charges 35 bps in annual fees. It trades in a lower average daily volume of 8,000 shares and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

VanEck Office and Commercial REIT ETF (DESK Quick QuoteDESK - Free Report) – Up 28.1%

VanEck Office and Commercial REIT ETF offers concentrated exposure to the U.S. office property segment and follows the MarketVector US Listed Office and Commercial REITs Index. It holds 26 stocks in its basket and charges 50 bps in annual fees.

VanEck Office and Commercial REIT ETF has accumulated $1.3 million in its asset base since its inception a year ago. It trades in a paltry volume of about 500 shares a day on average. 

Themes Gold Miners ETF (AUMI Quick QuoteAUMI - Free Report) – Up 26.2%

Themes Gold Miners ETF seeks to track the Solactive Global Pure Gold Miners Index, which identifies the largest 30 companies by market capitalization deriving their revenues from gold mining. It holds 29 stocks in its basket, with Canadian firms accounting for 51.4%, followed by Australian firms with a 29.6% share. 

Themes Gold Miners ETF has accumulated $2.3 million in its asset base. It charges 35 bps in fees per year and trades in a lower average daily volume of 1,000 shares (read: Gold Mining ETFs Soar on Record Bullion Price).

iShares U.S. Home Construction ETF (ITB Quick QuoteITB - Free Report) – Up 26.2%

iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. 

With an AUM of $3.7 billion, iShares U.S. Home Construction ETF holds a basket of 44 stocks. The product charges 39 bps in annual fees and trades in a heavy volume of around 2 million shares a day, on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU Quick QuotePSCU - Free Report) – Up 22.9%

Invesco S&P SmallCap Utilities & Communication Services ETF offers exposure to the securities of U.S. utility companies and companies in the communication services sector. It follows the S&P SmallCap 600 Capped Utilities & Communication Services Index, holding 36 stocks in its basket (read: Forget Technology, Focus on Utility ETFs to Tap AI Boom). 

Invesco S&P SmallCap Utilities & Communication Services ETF has accumulated $21.2 million in its asset base while trading in an average daily volume of 8,000 shares. It charges 29 bps in annual fees.