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4 ETF Areas Likely to Stay Strong Entering 2017

Zacks Equity Research

The final week of 2016 ended on a soft note with the key U.S. equity gauges retreating. The S&P 500-based SPY lost about 0.8%, Dow Jones-based ETF DIA shed 0.7% and Nasdaq-100 based QQQ receded over 1.3% in the last five trading sessions (as December 30, 2016). 

As per the Stock Trader's Almanac, Santa rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) that extends into the first two days of the New Year. This time, Santa apparently couldn’t gift the broader markets hefty gains, though some corners stayed blessed and gained momentum just before entering the new year (read: 3 Low P/E Momentum ETFs & Stocks for Uncertain Santa Rally).

Below are four ETF areas that returned smartly in the last five trading sessions of 2016 while the broader market remained somber.

Gold Miners

The possibility of faster Fed policy tightening and the resultant strength of the greenback as well as a Trump rally led to a 13% drop in the metal in Q4 – marking “its second-worst quarter in 18 years” and “its worst quarter since the second quarter of 2013.”

However, the metal bounced back at the tail end of 2016 when Santa rally fizzled out on overvaluation concerns. Gold bugs enjoyed “their best day in nearly two months on December 29.” Since mining companies act as leveraged plays on underlying metal prices, metal miners tend to outperform ahead (read: More Pain or Relief Ahead for Gold ETFs in 2017?)

Several gold mining ETFs like Global X Gold Explorers ETF GOEX,VanEck Vectors Junior Gold Miners ETF GDXJ), ALPS Sprott Junior Gold Miners ETF SGDJ and PowerShares Global Gold & Precious Metals ETF PSAU added around 10% or more returns in the last five days of 2016.


Among the soft commodities, sugar prices have been on a tear lately. India, one of the world’s largest sugar producers, is also expected to see an uptick in prices on a rise in the cost of production. “As per the international sugar organization, the 2015-16 season is expected to see the steepest fall in sugar production.”

Natural Gas

Finally, winter has heated up natural gas prices. The forecast of colder weather and a slump in inventory drove prices higher recently. The EIA reported a steep drop in natural gas inventories for the week ending December 23, reflecting a drawdown of 237 billion cubic feet (Bcf). In any case, the commodity “logged the largest gains in a decade” in 2016. iPath Bloomberg Natural Gas SubTR ETN (GAZ) returned about 13.1% in the last five days (as of December 30, 2016) (read: Natural Gas ETFs Warm Up: Will the Rally Continue?).

Emerging Markets

Even some emerging market ETFs displayed an uptrend lately. Among the recent winners, ProShares MSCI Emerging Markets Dividend Growers EMDV, KraneShares Zacks New China ETF KFYP and VanEck Vectors Indonesia ETF (IDX) deserve a mention. While the economic situation in China has started stabilizing, Indonesia’s growth prospect is expected to be higher in 2017 than last year.  

Coming to dividend growers, this kind of an ETF always points to quality exposure.  The underlying index of the fund targets companies that have hiked dividend payments each year for at least seven successive years (read: 6 ETF Ideas Most Favored by Issuers in 2016).