With the second quarter winding to a close, we’re nearly at the halfway point of 2019. So it’s an ideal time to examine some of the investment strategies that have been working this year. Broadly speaking, 2019 has been a good year for equities, but there have recently been bumps in the road, mainly caused by an ongoing trade tiff between the U.S. and China, the world’s two largest economies.
As has been widely reported, this trade spat has wide-ranging implications for a variety of sectors, including cyclical and growth stocks, the corners of the equity market that have been driving forces for much of this bull run.
With that in mind, it may not have been surprising that stocks tanked in May, prompting massive outflows from exchange traded funds (ETFs).
“As a result of the trade-induced market drawdown, equity ETFs posted their highest level of outflows for a given month ever, totaling over $19.9 billion,” said State Street in a recent note. “Outflows in May are not that uncommon, however. Over the last ten years, equities have had outflows in the month of May 45% of the time—the third highest percentage for a given month.”
Still, the best ETFs remain beloved by advisors and investors, particularly those looking for low-cost investment ideas or avenues for boosting portfolio diversity. Fortunately, some of the best ETFs are delivering stellar performances this year.
In searching for this year’s best ETFs, we excluded leveraged funds because those are short-term instruments. A heads up: investors will find that many of the best ETFs to this point in 2019 are thematic funds, including some of the ETFs highlighted here.
Invesco Solar ETF (TAN)
Expense ratio: 0.70%
YTD return: 49.92%
Oil prices climbed earlier this year, boosting the fortunes of alternative energy stocks along the way. Of course, that scenario benefited the Invesco Solar ETF (NYSEARCA:TAN), the largest solar ETF. Up nearly 50% year-to-date, TAN is easily one of this year’s best ETFs. Moreover, considering this fund’s China exposure, its recent performance has been exceptional. TAN barely budged in May and is up 10.14% this month.
Earlier this week, Goldman Sachs boosted its rating on several of TAN’s marquee components, including SunPower Corporation (NASDAQ:SPWR), Sunrun Inc (NASDAQ:RUN), and Solaredge Technologies Inc (NASDAQ:SEDG).
While TAN allocates over 21% of its weight to Chinese solar companies, one of the important factors making this one of the best ETFs and one cited by Goldman in the aforementioned upgrades is domestic in nature.
Starting next year, California will require all new homes that are built there to have solar panels, representing significant opportunity for several of TAN’s components.
ALPS Clean Energy ETF (ACES)
Expense ratio: 0.65%
YTD return: Almost 29%
Keeping with the theme of alternative energy funds, there is the ALPS Clean Energy ETF (CBOE:ACES), which is also one of this year’s best ETFs. ACES, which is about a year old, is one of the best ETFs for investors looking for exposure to multiple clean energy themes.
While TAN is dedicated to solar, ACES offers exposure to solar, wind, smart grid, biomass, geothermal, electrical vehicle/storage and fuel cell stocks. ACES slumped a bit more than TAN last month, but this alternative energy fund is on the mend this month and is up a solid 7% in the second quarter.
If oil prices can rebound in the back half of 2019, ACES and TAN can solidify their perches as two of this year’s best ETFs.
Global X MSCI Argentina ETF (ARGT)
Expense ratio: 0.59%
YTD return: 35.45%
The MSCI Emerging Markets Index, which will soon feature Argentine stocks, is up barely more than 7% this year, but the Global X MSCI Argentina ETF (NYSEARCA:ARGT) is clearly one of this year’s best ETFs, emerging markets or otherwise. Yes, some of ARGT’s status as one of 2019’s best ETFs has to do with global investors buying Argentine equities in anticipation of South America’s second-largest economy being added to the MSCI Emerging Markets Index.
However, there are other factors at play, including ARGT’s 21.14% weight to Latin American e-commerce giant MercadoLibre, Inc. (NASDAQ:MELI). That stock, which is ARGT’s largest holding, is up nearly 113% this year. ARGT is up 8.39% this month as the fund has been boosted by news that President Mauricio Macri is opting for a moderate running mate in this year’s national election there.
“This year, Argentine markets seem to be mimicking patterns from the last presidential election cycle in 2015, when after a strong Q1, election-related uncertainty led to a mid-year market downturn,” according to Global X research. “Almost on cue in 2019, a 17.3% rise in Q1 was met with a selloff in April after default risk spiked. The jump came after early polling data showed higher approval ratings for the former populist President, Cristina Fernandez de Kirchner (CFK) relative to the current pro-market reformist President, Mauricio Macri.”
Invesco DWA NASDAQ Momentum ETF (DWAQ)
Expense ratio: 0.60%
YTD Return: 34.05%
Some momentum stocks have been under pressure due to the trade spat, but others, particularly those with significant domestic exposure, are holding up pretty well. That has the Invesco DWA NASDAQ Momentum ETF (NASDAQ:DWAQ)sitting pretty as one of this year’s best ETFs. DWAQ can be used as complement or alternative to traditional Nasdaq-100 ETFs.
DWAQ tracks the Dorsey Wright NASDAQ Technical Leaders Index, which is a different beast than the cap-weighted Nasdaq-100.
“All securities in the universe are ranked using a proprietary relative strength (momentum) measure. Each security’s score is based on intermediate and long-term price movements relative to a representative market benchmark and the other eligible securities,” according to Invesco.
DWAQ actually makes for a nice complement to a standard Nasdaq-100 ETF because this Invesco allocates “just” 27% of its weight to technology and healthcare is its largest sector weight at 38.22%. DWAQ is also one of the best ETFs for investors seeking mid/small blend exposure because large caps represent just 19.25% of the fund’s weight.
O’Shares Global Internet Giants ETF (OGIG)
Expense ratio: 0.48%
YTD return: 31%
The O’Shares Global Internet Giants ETF (NYSEARCA:OGIG) is one of several internet funds that qualify for the best ETFs conversation, but there is something rather remarkable about this fund this year. While OGIG features ample exposure to Chinese internet stocks, some of which have been slammed by the trade war, this fund is holding up really well.
None of OGIG’s holdings command weights of more than 6.59%, but the good news for investors is that marquee domestic names in the fund, such as Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG,GOOGL), derive significant portions of their revenue in the U.S. and small percentages in China.
Alphabet and Facebook garner 2% and 9% of their revenue from China, respectively, but Tencent depends on its home country for 97% of its top line, according to O’Shares research.
Todd Shriber does not own any of the aforementioned securities.
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