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Best & Worst ETFs During Market Chaos

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·5 min read
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Best & Worst ETFs During Market Chaos
Best & Worst ETFs During Market Chaos

Not many areas of the market have been immune to the enormous gyrations the financial markets have seen lately. In the two weeks since the S&P 500 peaked, most exchange-traded funds have fallen. Likewise, most ETFs rose when the market had two extraordinary rallies of more than 4% on Monday and Wednesday.

But while most ETFs have been moving in tandem, the gains and losses haven’t been equal. Since its Feb. 19 top, the SPDR S&P 500 ETF Trust (SPY) is down 10.6% through March 4 (it was down as much as 12.4% on a closing basis, and 15.8% on an intraday basis at its trough on Feb. 28). On a year-to-date basis, SPY is down about 6%.

SPY’s performance in the past two weeks sits at about the middle of the pack; some ETFs have done better, while others have done worse.

Following are some of the other notable ETF movers.

Safe Havens

Inverse ETFs aside, it’s been extremely difficult to generate gains in the market since the Feb. 19 peak. It comes as no surprise that one of the few segments to perform well in that time frame is the bond market. Treasuries and other investment-grade bond ETFs have simply been on fire.

The iShares 20+ Year Treasury Bond ETF (TLT) and the iShares 7-10 Year Treasury Bond ETF (IEF) gained 9.1% and 5.2%, respectively, since Feb. 19. On a year-to-date basis through March 4, the two funds are up 17.4% and 8.4%.

Those are fantastic returns, and come as interest rates hover at record lows (bond yields and prices move inversely).

Another safe-haven winner during the past two weeks is gold. The yellow metal leapt to seven-year highs of $1,689/oz on Feb. 24. Since then, prices cooled down a little bit to around $1,670, but the SPDR Gold Trust (GLD) is still up 3.8% since Feb. 19 and 10.2% on a year-to-date basis—not as good as long-duration Treasuries, but better than IEF, the 7-10 year Treasury fund. 

Gold Near A 7-Year High 

China ETFs

Who could have imagined that stocks trading in China, the epicenter of the coronavirus, would end up being among the best performers of the past two weeks? But that’s precisely what’s happened.

The Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) is up 4.3% in the period and 1.7% year-to-date. Two explanations for this puzzling performance come to mind. One, China got hit by the virus first, the government took drastic action to combat it, and there are signs the epidemic may be peaking in the country. The market may be anticipating that China will be the first country to recover from the crisis thanks to decisive action from the authoritarian government.

Another explanation is that the Chinese government may be propping up the financial markets. It wouldn’t be the first time that China lent support to its equity markets to prevent panic and provide confidence to its financial system.

Surprising Strength In ASHR

Sector Outperformers

Within the U.S. equity market, sector performance has deviated significantly. The S&P 500 may be down 10.6% over the past couple of weeks, but relatively safe consumer staples stocks are down only 3.8%, as measured by the Consumer Staples Select Sector SPDR Fund (XLP).

The Utilities Select Sector SPDR Fund (XLU) and the Real Estate Select Sector SPDR Fund (XLRE) are also outperforming, with losses of 3.6% and 5%, respectively, in the same period. The two sectors have been aided by plunging interest rates.

Then there is the Health Care Select Sector SPDR Fund (XLV), which has fallen 6.1% since the correction began. XLV made up a lot of ground on Wednesday, when it surged 5.7%, its biggest single-session gain since 2008. Surprise victories by Joe Biden in the Super Tuesday democratic primaries reduced concerns about Medicare-for-all and other health care measures that could negatively impact the sector’s profits.

On a year-to-date basis, XLP is down 1.5%; XLU is up 4.7%; XLRE is up 1.3%; and XLV is down 4.1%.

XLU Is Up Year-To-Date

Sector Laggards

On the flip side of the sector ledger are laggards like the Energy Select Sector SPDR Fund (XLE) and the Financial Select Sector SPDR Fund (XLF). The two worst-performing sectors, energy and financials, were down 17.9% and 15%, respectively, in the two weeks since Feb. 19.

In a way, financials are the flip side of real estate. The latter gets a boost from lower rates, while the former is hurt by them. Investors in financials certainly don’t want to see a situation like that in Europe, where negative interest rates have decimated the profitability of the region’s banking sector.

Additionally, the energy sector, already a pariah among investors, was hit yet again by the coronavirus-induced sell-off in oil prices. Crude was last trading below $46/barrel as traders anticipate the biggest slowdown in oil demand since the financial crisis.

The only saving grace for energy investors are the sky-high dividend yields the sector provides. XLE was last yielding nearly 5%.

XLE At An 11-Year Low

Other Laggards

XLE isn’t the only energy ETF to be walloped in the past two weeks. Two popular ETFs with exposure to smaller companies in the space, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the VanEck Vectors Oil Services ETF (OIH) each tumbled more than 25% in just the past two weeks alone and are down by more than 37% on a year-to-date basis.

Meanwhile, cheaper fuel prices haven’t been enough to offset the plunging demand for travel that airlines are facing. The US Global Jets ETF (JETS) sank nearly 30% since the market top and by a similar amount for the year as a whole.

On Wednesday, United Airlines announced that it is cutting its international flights by 20% and its domestic flights by 10% next month.

JETS Losing Altitude

Email Sumit Roy at sroy@etf.com or follow him on Twitter @sumitroy2

 

 

 

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