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4 ETFs Deserving Special Thanks

As Americans are preparing for Thanksgiving Day, let’s explore the bounty that the investment world holds on this occasion. This can be easily done by screening the ETFs that have rewarded investors this year.    

How is the Stock Market Faring?

The year 2016 has been highly volatile for the broad U.S. stock market from a trough seen in mid-February to a peak in August and then again in November. All the three major indices are currently at record highs with the S&P 500 and Nasdaq Composite gaining over 7.5% each while Dow Jones surging 9.2%.

Impressive gains were credited to an improving U.S. economy, rising oil prices, moderation of dollar strength, stabilization of Chinese markets and now the rally induced by the President-elect Donald Trump, whose proposed policies have instilled confidence in the market. Trump has promised to accelerate economic growth, spend big on infrastructure, reduce regulations, cut taxes and create more jobs in the country (read: ETFs & Stocks That Topped or Flopped After Trump Won).

Additionally, the Fed in its latest testimony hinted at a sooner-than-expected rates hike (might be in December) as the U.S. economy has been on a solid footing with an improving housing market, rising consumer prices and a robust labor market. All these factors are propelling the stocks higher. Further, return to earnings growth and holiday optimism are pushing the stocks higher.

While there have been winners in every corner of the space, a few ETFs have easily crushed the broad market in the year-to-date period. Below, we have highlighted four ETFs that have been star performers in the year-to-date time frame and could be better plays in the coming months. These ETFs deserve special thanks and attention going into the New Year too (see: all the Categories ETF here).

SPDR S&P Metals & Mining ETF XME

After giving awful performances over the past few years, the mining sector has staged a nice comeback on rebounding commodity prices, positive developments in China and improving global trends. Robust performances in the chemical business as well as metals & mining, copper, and steel industries helped the sector to climb again. Additionally, Trump’s pro-growth policies to revive U.S. manufacturing, and rehabilitate the country’s aging infrastructure benefited the stocks lately.  

While all the ETFs in the mining space have enjoyed smooth trading this year, XME is the winner having surged more than 113%. The ETF offers a broad exposure to the U.S. metal and mining industry by tracking the S&P Metals & Mining Select Industry Index. Holding 28 stocks in its basket, it is well spread across components with none holding more than 7.3% of assets. In terms of industrial exposure, steel makes up a large chunk at 56.5%, while precious metals and gold mining round out the next two spots with a single-digit allocation each. The product has $816.4 million in AUM and trades in solid volumes of around 5.4 million shares per day on average. It charges 35 bps in fees and expenses.

PowerShares Dynamic Semiconductors Fund PSI

Though the tech sector was hit hard lately, it is still shining from a year-to-date look. In particular, semiconductor stocks remained unscathed by Trump fears given that they are cyclical stocks and tend to move higher with market rallies. Ongoing consolidations, emerging technologies and impressive earnings from leaders in the industry added to the strength (read: Tech ETFs Rebound: Can the Surge Continue?).

This has translated into a great year for PSI, which has gained about 42% so far. This ETF tracks the Dynamic Semiconductor Intellidex Index, which selects stocks on a variety of investment criteria: price momentum, earnings momentum, quality, management action and value. In total, the fund holds a small basket of 30 securities with none holding more than 6.8% share. The product, with AUM of $119.9 million is often overlooked by investors and hence sees a lower average daily volume of around 31,000 shares. The product charges a fee of 63 bps a year and has a Zacks ETF Rank of 2 or ‘Buy rating with a High risk outlook.

First Trust RBA American Industrial Renaissance ETF AIRR

Industrial ETFs, like AIRR, have been on tear on recovering manufacturing industry and a push from manufacturing reshoring. This trend is likely to continue under Trump presidency because he pledges to cut taxes, boost fiscal spending and be stricter about outsourcing. These should provide a boost to the industrial stocks. He is highly expected to bring the lost U.S. manufacturing jobs back to the country (read: Manufacturing Reshoring Ahead? ETFs to Profit).

The ETF offers exposure to the small and mid cap securities in the industrial and community banking sectors by tracking the Richard Bernstein Advisors American Industrial Renaissance Index. Holding 43 stocks in its basket, the fund is pretty well spread across components with none holding more than 3.63% share. In terms of industrial exposure, engineering and construction and industrial engineering take the top two spots with a combined 58% of the portfolio. The product has $65.4 million in AUM and trades in a light volume of around 33,000 shares per day on average. It charges 70 bps in fees and expenses and is up 38.3% so far this year. The fund has a Zacks ETF Rank of 2 with a High risk outlook.

First Trust ISE Water ETF FIW

Being the low-beta sector, utility has gained immense popularity this year on heightened volatility and uncertainty. Additionally, the hunt for higher yield in the current lower rate environment has spurred a rally in the stocks as utilities offer solid dividend payouts and excellent capital appreciation over the longer term. In particular, water utilities are the biggest gainers due to the rising cost of water given limited supply, an ever-expanding population, poor sanitation and growing demand for consumption.

This has given a boost to water ETFs with FIW leading the way higher. This fund follows the ISE Water Index, which measures the performance of the firms that derive a substantial portion of their revenues from the potable and wastewater industries. Holding 35 stocks, it is pretty well spread out across components with each holding not more than 4.7% of assets. The fund has amassed $179.6 million in its asset base while charging investors 57 bps in annual fees. It trades in a lower volume of nearly 29,000 shares a day on average and has risen about 35.5% this year.

Bottom Line

These products have not only built better portfolios for investors this year but are also bringing diversification benefits by eliminating company-specific risks to a large extent with lower costs. As a result, these are considered praiseworthy in the ETF space.

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FT-ISE WATER IX (FIW): ETF Research Reports
PWRSH-DYN SEMI (PSI): ETF Research Reports
FT-RBA AMER IND (AIRR): ETF Research Reports
SPDR-SP MET&MIN (XME): ETF Research Reports
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