The first six weeks of the year have brought on a downward correction in the U.S. equity market following a stellar, record-breaking year in 2013. With that, we’ve seen a spike in volatility that reflects growing investor jitters as the Federal Reserve embarks on its second month of tapering.
Meanwhile, in commodities, several energy markets have found a strong footing on a record-setting winter in many parts of the country, and the downtrodden mining sector found new life in 2014.
It’s in that environment that these 8 ETFs stood out, delivering the best year-to-date returns so far.
The Market Vectors Junior Gold Miners ETF ( GDXJ ) has seen total returns of 17.5 percent so far this year.
Precious metals mining ETFs—those that invest in the companies that explore and produce precious metals around the globe—are staging a serious bounce from what was a very difficult year in 2013. Most of them bled more than half of their value amid sinking gold and silver values.
Now there’s a growing perception that these mining stocks may have hit cyclical lows. A pickup in mergers and acquisitions in the space suggests valuations are attractive, which is pushing these stocks, and the ETFs that own them, higher.
GDXJ tracks a market-cap-weighted index of global gold and silver mining firms. Included in the index are small- and medium-capitalization companies. The fund has gathered $1.45 billion in total assets since inception, costs 0.55 percent in expense ratio, and trades with an average spread of 13 basis points, putting total cost of ownership around $68 per $10,000 invested.
The United States Natural Gas ETF ( UNG | A-78 ) has seen total returns of 19 percent year-to-date.
Natural gas has been one of the hottest energy markets this year. In what has been a record-setting winter across many parts of the U.S., demand for natural gas—used for heating—has been solid, putting pressure on inventories and boosting prices.
UNG invests in near-month natural gas futures contracts in a strategy that reflects short-term supply/demand dynamics in the natural gas market. The fund is highly liquid—trading more than $280 million on average a day—and has gathered nearly $900 million in total assets, making it the biggest natgas ETF in the market today.
The natural gas market is currently in backwardation, meaning the nearby futures contract is the most expensive in the futures curve, allowing investors to earn extra return when the position is rolled into other contracts upon expiration.
UNG costs 1 percent in expense ratio and trades with an average spread of 5 basis points, so investors are shelling out roughly $105 per $10,000 invested to own the fund.
Like GDXJ, these two funds are benefiting from momentum in mining stocks.
SILJ tracks a modified market-cap-weighted index of small-cap silver mining and exploration companies. The fund has attracted $2.27 million in total assets, and has an expense ratio of 0.69 percent. But its average trading spread is clocking in at 1.17 percent, putting total cost of ownership closer to 1.86 percent a year.
GLDX, meanwhile, tracks a market-cap-weighted index of companies engaged in the exploration of gold globally. The fund has $33 million in assets and a price tag hovering 1.22 percent a year once trading spreads are accounted for.
JO tracks a single, front-month coffee futures contract. It’s one of the only ETPs to tap exclusively into the coffee market, and it is larger and cheaper than competing CAFE. By design, JO serves up direct exposure to the short-term supply and demand dynamics of the coffee market, which are currently reflecting inventory concerns amid supply shortages.
After bleeding roughly two-thirds of value in a two-year period, coffee prices are now rising, thanks to weather concerns in coffee-producing Brazil at a time when demand from key importers such as Europe is on the rise.
Still, being a futures strategy, JO is susceptible to the erosive impact contango has on returns. Contango is the added roll cost the strategy faces when the nearby futures contracts are more expensive than the current contract. The coffee market is currently in contango, although the spread has narrowed recently. It costs investors right now about 8.68 percent annualized to roll front-month coffee contracts, according to our latest Contango Report.
CAFE, meanwhile, tracks an index of a single coffee futures contract whose expiration date is chosen to mitigate contango, but its performance has so far been very similar to JO’s, despite the optimized exposure.
CAFE has attracted only $9.62 million in total assets, and it costs all-in about 1.11 percent a year. JO has $165 million in assets, and costs about 0.88 percent a year.
The C-Tracks Citi Volatility ETN ( CVOL | D-50 ) is up 21 percent year-to-date.
The CBOE Volatility Index, or VIX, saw record trading volume in January as it reached new highs. The index, also known as the fear gauge, is considered to be a good indicator of market sentiment. In recent weeks, its spike has come down, as the S&P 500 slid more than 5.2 percent since the beginning of the year.
CVOL tracks an index with double exposure to the third- and fourth-month futures on the VIX, as well as short exposure to the S&P 500 Index. It’s designed to serve up high correlation to the VIX, and for a high cost—its expense ratio is 1.15 percent, and its average trading spread is clocking in at 2.25 percent.
That puts investor costs of owning this strategy at roughly 3.40 percent a year, or $340 per $10,000. The strategy has only attracted $3.8 million in total assets.
The iPath Global Carbon ETN ( GRN | F-36 ) is up 42 percent year-to-date.
GRN is a highly illiquid strategy, and a costly one at that. All-in expenses clock in at 6.75 percent a year, or $675 per $10,000 invested once you consider the average trading spread of this security.
The strategy is small—under $1.4 million in assets—yet it has now seen total returns of 42 percent year-to-date. On the surface, that’s impressive, but to quote our ETF analysts, GRN is “way ahead of its time,” and not in a good way.
The ETN serves up exposure to what is a thinly traded and poorly developed global carbon markets by tracking a Barclays index that measures the performance of emissions units issued under the Kyoto protocol.
“Unfortunately for GRN, there’s much deserved skepticism about the viability of that carbon market,” our ETF Analytics fund report says. “While past performance shouldn’t be seen as predictive of future performance, it’s hard to ignore the fact that this fund is down more than 90 percent since inception.”
Charts courtesy of StockCharts.com