3 ETFs ready to pop on the next market leg higher

Published Wed, Apr 29 20157:54 AM EDTUpdated Wed, Apr 29 20158:13 AM EDT

With U.S. stocks once again trading at a record, investors are searching for which investments may work for the next leg higher. Here are three ETFs that may be ready to pop. Exchange-traded funds have become a critical part of the market in the past few years, with investors pouring more than a quarter-trillion dollars into U.S. listed funds in 2014—a new record. With that in mind, CNBC Pro used a proprietary method to scan these fast-trading funds for the ones that have increasing money flows and whose member stocks have a bright outlook. Using data from ETF.com and FactSet, we first ran a screen of more than 500 ETFs focused on different sectors and slices of the market in order to find the funds with spikes in volume over the last five days. Once we narrowed the list, we calculated the average 12-month return for a typical stock in the ETF based on the consensus Wall Street price targets of each individual member. Below are the three ETFs that should see some of the biggest gains due to a boost in short-term money flow and as their stock holdings reach their bottoms-up projections. The Money Play: Vanguard Financials Index Fund (VFH) Based on 12-month price targets for this ETF's member stocks, the fund should see gains of about 9 percent over the next year. The ETF provides exposure to the U.S. financial-services sector. Unlike other equity groups, financials remain below their peak levels of 2007 and are expected to benefit from a potential rate hike increasing their profit margins. "Banks are the last cheap stocks left," Deutsche Bank wrote in a recent note to clients, noting that the group still trades at a price-earnings ratio discount to its historical average and the market. PowerShares Aerospace & Defense Portfolio (PPA) Based on 12-month price targets for this ETF's member stocks, PPA fund should rise by 12 percent over the next year. The ETF provides exposure to the defense industry, which we highlighted earlier this month as one of the top ideas for 2015 , according to RBC Capital Markets. Although U.S. defense spending is expected to fall, RBC Capital Markets' Chief U.S. Market Strategist Jonathan Golub says overseas markets will pick up the tab. "Defense companies are increasingly focusing abroad to offset domestic revenue declines," he said. PowerShares Dynamic Oil & Gas Services Portfolio (PXJ) Based on analysts 12-month price targets for this ETF's members, the average percentage increase stands at 9 percent. The ETF provides exposure to companies involved in the production, processing and distribution of oil and gas. If a strong rebound in oil prices—up more than 30 percent from a six-year low in March—continues, then this fund stands to be one of the biggest beneficiaries. Read More Why oil could fall to $20 a barrel

A U.S. Navy Aviation Boatswain's Mate signals to launch an F/A-18E Super Hornet aircraft from the flight deck of the aircraft carrier USS George Washington (CVN 73) in the South China Sea

Source: U.S. Department of Defense

With U.S. stocks once again trading at a record, investors are searching for which investments may work for the next leg higher. Here are three ETFs that may be ready to pop.

Exchange-traded funds have become a critical part of the market in the past few years, with investors pouring more than a quarter-trillion dollars into U.S. listed funds in 2014—a new record.

With that in mind, CNBC Pro used a proprietary method to scan these fast-trading funds for the ones that have increasing money flows and whose member stocks have a bright outlook.

Using data from ETF.com and FactSet, we first ran a screen of more than 500 ETFs focused on different sectors and slices of the market in order to find the funds with spikes in volume over the last five days.

Once we narrowed the list, we calculated the average 12-month return for a typical stock in the ETF based on the consensus Wall Street price targets of each individual member.

Below are the three ETFs that should see some of the biggest gains due to a boost in short-term money flow and as their stock holdings reach their bottoms-up projections.