U.S. Markets closed

Best and Worst Zones of Q1 and Their ETFs

Sweta Killa

The rally in the global stock market continued with Trump-fueled optimism and expectation of faster growth. In fact, stocks scaled multiple highs on several occasions in the first quarter amid bouts of volatility. While hopes of reflation trade, robust Q4 earnings, and signs of improvement in Japanese, Chinese, and European economies led to bullishness in stocks, slew of elections in Europe, fears of political instability and expensive valuation keep investors cautious.

That said, most corners of ETF investing have performed exceptionally well while a few areas are lagging. Below, we have highlighted the best and worst zones of Q1 and their ETFs in detail:

Best Zones

Emerging Market


Emerging market stocks have been on a tear this year with India leading the way higher. After being beaten down badly by the twin attacks of Donald Trump’s victory and currency demonetization last year, India’s stock market has made a stunning comeback this year. The landslide victory of Prime Minister Narendra Modi in a key state election, upbeat GDP data, and the Fed’s dovish outlook on future rates hike has renewed optimism in this emerging market lately.

Additionally, a slew of economic reforms, improving current account deficit, a rebound in agriculture, a recovery in private investment, introduction of the Goods and Services Tax (GST), and a fall in interest rates are fueling growth and driving stocks higher (read: 5 Reasons to Buy India ETFs Now).

While all India ETFs have enjoyed smooth trading, Columbia India Small Cap ETF SCIN has turned out the biggest winner, having surged about 30.4% in value. The fund targets the small cap segment and tracks the Indxx India Small Cap Index. In total, it holds 74 securities in its basket with none making up for more than 5.9% of assets. From a sector look, industrials dominates the fund’s return at 28.3%, closely followed by financials (22%) and consumer discretionary (17.2%). The fund has so far amassed $25.3 million in its asset base while charging 86 bps in annual fees. Volume is light, exchanging around 6,000 shares in hand a day. SCIN has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook.

Healthcare

The healthcare sector has grabbed maximum investor attention and is the best performing sector of Q1 despite twist and turns. The surge has come on cheap valuation, robust earnings results, encouraging industry trends, and a slew of positive actions taken by the President. In particular, Trump has promised to reduce federal regulations by 75–80% and streamline the Food & Drug Administration’s (FDA) approval process. This would make it easier for biotech companies to bring new products to the market. Trump’s proposed tax reforms and cash repatriation policy also supported the rally.

Notably, BioShares Biotechnology Clinical Trials ETF BBC is the showstopper with a 27.4% increase. It has a novel approach to biotechnology investing with exposure to companies that are in the clinical trials stage. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. BBC is a small cap centric fund, having amassed $24.4 million in its asset base. It charges 85 bps in fees per year from investors and trades in a light average daily volume of around 14,000 shares. Holding 70 stocks in its basket, it is widely spread out across various components with none holding more than 3.34% share. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: Top ETF Stories of Q1 from Wall Street).

Latin America

Argentina is the top player of Q1 in Latin America thanks to hopes of an economic turnaround under President Mauricio Macri’s administration. The market-friendly government has promised to take the economy back to its growth path through a host of reforms after back-to-back years of near stagnation. As such, the lone Global X MSCI Argentina ETF ARGT targeting the country has risen nearly 21% this year.

The fund tracks the MSCI All Argentina 25/50 Index, holding 26 stocks in its basket. It is highly concentrated on the top two firms at 36.2% while the other firms hold less than 8.9% share. With respect to sectors, energy makes up for nearly one-third of the portfolio followed by double-digit exposure to technology and financials. The fund has managed $134.4 million in its asset base and trades in average daily trading volume of nearly 61,000 shares. It charges 74 bps in fees and expenses and has a Zacks ETF Rank of 3 with a Medium risk outlook.

Worst Zones

Volatility

Trump’s actions led to increased market uncertainty and political worries, but have not been able to break the bullish trend in the market. As a result, volatility products are the biggest losers in the first quarter. In particular, iPath S&P 500 VIX Short-Term Futures ETN VXX has tumbled 39.4%.

The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months VIX futures contracts. The note has amassed $1 billion in AUM and charges 89 bps in fees per year. It sees a truly impressive volume of about 41.3 million shares a day (read: TThe Key Things to Know When Trading Volatility with ETFs).

Energy

Overall, energy has underperformed throughout the first quarter with natural gas being the biggest laggard. This is because warmer weather dented heating demand for natural gas in winter and high stockpiles continued to weigh on demand. As a result, the ETFs tracking natural gas futures have been hit hard, with iPath Bloomberg Natural Gas Subindex Total Return ETN GAZ shedding nearly 33%.

The note delivers returns through an unleveraged investment in the natural gas futures contract plus the rate of interest on specified T-Bills. It follows the Bloomberg Natural Gas Subindex Total Return Index. The product is unpopular and illiquid with AUM of $4.8 million and average daily volume of 51,000 shares. Expense ratio comes in at 0.75%.

Carbon-Credit Commodity

The renewable energy space has been badly hit as President Trump has promised to revive the downtrodden coal industry and scrap regulations. In this regard, Trump signed an executive order this week to roll back the Clean Power Plan – Obama's signature climate policy aimed at curbing carbon emissions (read: Trump Repeals Clean Power Plan: ETF Winners & Losers).

This led to a steep decline of 27.6% in iPath Global Carbon ETN GRN. The ETN follows the Barclays Global Carbon Index Total Return, which measures the performance of the most highly traded carbon-related credit plans. The note holds around 99.96% of its total assets in futures contracts of ECX Allowances (EUA) Emission and the remaining in futures contracts of ECX Certified Emission Reductions (CERs). The ETN has total assets of $0.7 million while volume is extremely light at around 9,000 shares a day. It charges investors 75 bps in fees and expenses.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>