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Best & Worst ETF Zones at Half-Way Q1

Sweta Killa

Through the first half of first-quarter 2020 stocks across the globe have been on a smooth ride amid the fast-spreading coronavirus, which has infected at least 64,000 people in China and killed 1,400. It is also weighing on global economic growth.

The gains were driven by initial U.S.-China trade deal, China stimulus measures, easing policies and slew of upbeat economic data. China has halved tariffs on some $75 billion of U.S. imports, beginning Feb 14, as part of its phase-one trade deal with the United States. Tariffs on some U.S. goods will be cut to 5% from 10%, while levies on some other items will be reduced to 2.5% from 5%, per China’s Ministry of Finance. The tariffs were imposed in September and December during a trade fight between the world’s two largest economies. Also, the People’s Bank of China has injected $1.7 trillion yuan ($242.9 billion) into the economy (read: China ETFs to Gain on New Stimuli to Combat Coronavirus).

Meanwhile, the U.S. economy has been resilient. In particular, the labor market was off to a strong start in 2020, creating 225,000 new jobs in January. The manufacturing sector, which had languished in contraction territory for five months, rebounded strongly in January while services sector activity also picked up, with industries reporting increases in new orders. Retail sales also strengthened for a fourth consecutive month. The solid data suggests that the economy could continue to grow moderately this year.  

Given this, we have highlighted the best and worst performing zones and their ETFs in the first half of the first quarter:

Best Zones

Palladium


Palladium continued last year’s bullish run on growing global demand and stagnating supply. As a result, Aberdeen Standard Physical Palladium Shares ETF PALL has climbed 25.8% so far this year. The fund seeks to match the price of palladium. It owns palladium bullion in plate or ingots kept in Zurich or London under the custody of JPMorgan Chase Bank. The product has amassed $393.2 million in its asset base and trades in lower volume of about 39,000 shares a day. It charges 60 basis points (bps) in annual fees and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Palladium ETF Continues to Surge in 2020: What Lies Ahead?).

Solar

Solar stocks are getting a boost from increased demand. Several factors including coal plant retirements and falling costs for renewables are fueling the need for new solar projects. Additionally, the rise of sophisticated storage assets has made solar more attractive. Invesco Solar ETF TAN, which offers global exposure to 22 solar stocks by tracking the MAC Global Solar Energy Index, jumped 21.8%. U.S. firms dominate the fund’s portfolio with 46.9% share, followed by China (22.8%) and Spain (7.7%). The product has amassed $609.2 million in its asset base and trades in average daily volume of 241,000 shares. It charges investors 71 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: 5 ETFs to Fall in Love With This Valentine's Day).

Technology

The technology sector has been on a tear on the initial phase of the U.S.-China trade given its huge exposure to China. Additionally, the rapid emergence of cutting-edge technology and the growing adoption of 5G technology are providing impetus to the space. While there are number of promising tech ETFs, ARK Next Generation Internet ETF ARKW has been leading the way, gaining 21.6%. This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. It holds 44 stocks in its basket. The ETF has amassed $577.8 million in its asset base and trades in a good average daily volume of around 126,000 shares. The expense ratio comes in at 0.76% (read: Active ETFs Gaining Priority: Top Performers of the Past Year).

Worst Zones

Shipping

Shipping stocks have been hammered as dry bulk freight rates dropped to new lows due to shrinking demand across all vessel categories. As such, Breakwave Dry Bulk Shipping ETF BDRY fell 40.3% in the first half of the first quarter. It provides exposure to the daily price movements of the near-dated dry bulk freight futures. The fund has accumulated about $5.4 million in AUM. It trades in a paltry volume of about 12,000 shares per day on average and charges higher annual fee of 1.85% (see: all the Industrial ETFs here).

Energy

Energy sector has been hit hard on oil price collapse as the fast-spreading deadly virus has resulted in a slowdown in energy consumption amid a well-supplied oil market. According to Bloomberg, China’s oil demand has dropped by roughly 3 million barrels a day, or 20% of total consumption due to the virus’ impact on China’s economy. The fall represents the largest demand shock the oil market has suffered since the global financial crisis of 2008 to 2009, and the sudden most since the Sep 11 attacks. In particular, Invesco S&P SmallCap Energy ETF PSCE declined the most, shedding 24.2%. This fund provides exposure to the U.S. small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index. It holds 43 stocks in its basket with AUM of $19.3 million. The fund trades in average daily volume of 45,000 shares and charges 29 bps in fees per year. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook (read: Is the Nightmare Over for Coronavirus-Infected Energy ETFs?).

Coffee

iPath Series B Bloomberg Coffee Subindex Total Return ETN JO declined 16% in the same time frame. It tracks the Bloomberg Coffee Subindex Total Return, which reflects the returns that are potentially available through unleveraged investment in futures contracts on coffee. The ETN has AUM of $85 million and average daily volume of 91,000 shares. It charges 45 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

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