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ETFs Winners & Losers Halfway Through Q3

Sweta Killa

The third quarter is seeing huge volatility triggered by U.S.-China trade conflicts, low inflation, collapse in bond yields, political unrest in Hong Kong as well as a plunge in Argentina's currency and stock markets. In fact, the U.S. Treasury yield curve temporarily inverted on Aug 13 for the first time since June 2007 as 10-year yields broke below 2-year yields, signaling that the world’s biggest economy could be heading for a recession (read: Don't Fear Yield Curve Inversion, Play These Top ETFs Instead).

Additionally, a slew of downbeat economic data across the globe also resulted in a stock market decline. The U.S. ISM manufacturing index dropped for the fourth straight month in July to record the lowest reading since August 2016. The U.S. non-manufacturing (services) index also dropped last month. United Kingdom’s economy shrank for the first time in more than six years in the second quarter and the producer-price index in China contracted for the first time in nearly three years. China’s industrial output growth fell to a more than 17-year low.

However, hopes of easing money policies across the globe and positivity surrounding the trade deal continue to drive the stocks higher. In the latest trade development, Washington extended a 90-day temporary license allowing China’s Huawei Technologies to continue doing business with U.S. firms (read: Global Stimulus & Huawei Relief Boost Markets: ETFs in Focus).

Given this, many corners of the market have seen rough trading while a few still stand tall. Below, we have highlighted ETFs from the best and worst zones at the halfway mark in Q3.

Best Zones

Shipping


Shipping stocks are sailing smoothly on the resumption of iron-ore shipments from Brazil and Typhoon Lekima, which disrupted shipping in the East China Sea leading to a rise in dry bulk freight costs. As a result, Breakwave Dry Bulk Shipping ETF BDRY has climbed 37.6% so far this quarter. This is an actively managed ETF that seeks to provide exposure to daily changes in the price of dry bulk freight futures by tracking the performance of a portfolio consisting of a three-month strip of the nearest calendar quarter of futures contracts on specified indexes that measure rates for shipping dry bulk freight. The fund has accumulated about $1.8 million in AUM. It trades in a paltry volume of about 7,000 shares per day on average and charges a higher annual fee of 1.85% (read: ETF Winners & Losers of Last Week).

Nickel

Nickel prices are skyrocketing this quarter on constricting supply and prospect of further tightening. This is because disruptions at a nickel smelter as well as floods and landslides in Indonesia, a major producer of the ore, have disrupted supplies. Now, Reuters has reported that the Indonesian government could impose an export ban on nickel ore sooner than expected by the market. This news added to the spike lately with iPath Bloomberg Nickel Subindex Total Return ETN JJN climbing about 25%. The note tracks the Bloomberg Nickel Subindex Total Return, which provides returns through one futures contract on nickel. The product is unpopular and illiquid with AUM of just $8.4 million and average daily volume of around 1,000 shares. Expense ratio came in at 0.75%. JJN has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Gold Mining

Gold has been surging on global stimulus and a flight to safe haven. Being a leveraged play on the underlying metal prices, metal miners experience more gains than their bullion cousins in a rising metal market. While most of the gold mining ETFs are rising, U.S. Global GO GOLD and Precious Metal Miners ETF GOAU has been leading the way gaining 17.2%. This fund provides investors with access to companies engaged in the production of precious metals either through active (mining or production) or passive (owning royalties or production streams) means. It tracks the U.S. Global Go Gold and Precious Metal Miners Index, holding 28 stocks in its basket. Canada takes the lion’s share at 56.8%, followed by South Africa (17.8%) and United States (12.9%). It has amassed $25.4 million in its asset base and charges 60 bps in fees per year. Volume is light at nearly 17,000 shares (read: How to Bet on Gold Surge With ETFs & Stocks).

Worst Zones

Argentina


Argentina’s stock market collapsed following the unexpected outcome of the primary election for the presidential candidate. The S&P Merval Index plummeted 48% on Aug 12, representing the second-largest single-day drop in any global stock market since 1950, according to Bloomberg. The historic decline has sparked fears that South America’s second-largest country is on track for another default. As a result, Global X MSCI Argentina ETF ARGT, which invests in the largest and most-liquid securities with exposure to Argentina, shed 25.4%. It tracks the MSCI All Argentina 25/50 Index and holds 28 stocks in its basket. The fund has managed $72.6 million in its asset base and trades in average daily trading volume of nearly 107,000 shares. It charges 59 bps in fees and expenses and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Energy

Oil price saw a tumultuous ride on the dual attack of rate cut and new China tariff. The decline came despite the two bullish drivers — a bigger-than-expected decline in U.S. inventories and a fall in OPEC production in July. Though most of the energy ETFs declined, S&P Oil & Gas Equipment & Services ETF XES stole the show, losing 23.6% so far this quarter. This fund tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of companies engaged in the oil and gas equipment and services industry. Holding 38 stocks in its basket, it charges 35 bps in annual fees and trades in solid volume of 1.3 million shares a day on average. The fund has amassed $129.4 million in its asset base (read: Energy ETFs Crash on Rate Cut and New China Tariff).

Copper

Copper price declined on fears that escalation in trade tensions and slowing economic growth will hurt the red metal’s demand. As such, Global X Copper Miners ETF COPX, which offers global access to a broad range of copper mining companies, plunged 21.6%. It tracks the Solactive Global Copper Miners Total Return Index and holds 29 stocks in its basket. Canadian firms take the largest share at 32.7%, while Australia also receive double-digit exposure. The product has managed $41.4 million in AUM, while charging 65 bps in fees per year. It trades in a light volume of 49,000 shares a day on average.

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