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Top and Flop ETFs at Half-Way Q4

At the midway through the fourth quarter, stocks across the globe are stuck in a nasty web of woes. Higher interest rates in the United States, political malaise in Europe, trade woes and threats of global slowdown have created tensions in the equity world. Oil slipping into the bear territory has led to further caution among investors.  

In fact, these events pushed the Nasdaq Composite index and S&P 500 index into correction territory at the end of October (read: 5 Inverse ETFs Up More Than 40% in October).

However, a slew of strong earnings, rounds of upbeat economic data and holiday fervor helped to revitalize investors’ sentiment to some extent. This is especially true as the American economy has been on a solid pace of growth with robust job creation, strong GDP growth, a 50-year low unemployment rate, the fastest pace of wage gains in nearly a decade, and rising consumer and business confidence. While third-quarter GDP growth slowed to 3.5% from 4.2% in the second quarter amid mounting headwinds from trade, it marks the best two-quarter stretch in four years. With this, the economy is on pace for the fastest annual growth in 13 years.

Meanwhile, Q3 earnings for 91.2% of the S&P 500 members that have reported results are up 26.2% from the same period last year on 8.8% higher revenues, with 78.5% beating EPS estimates and 63.6% beating revenue estimates. This is better than the earnings growth from this group of companies in other recent periods though revenue growth represents a deceleration from the recent past.

Given this, we have highlighted both the best and worst performing zones and their ETFs at halfway Q4:

Best Zones

Volatility


Volatility roared back in the final quarter with volatility products being the outperformers at the half-way mark. In particular, ProShares VIX Short-Term Futures ETF VIXY has surged nearly 25% so far this quarter. It seeks to profit from increases in the expected volatility of the S&P 500, as measured by the prices of VIX futures contracts. The ETF focuses on the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. It has amassed $110.7 million in AUM and charges 85 bps in fees per year. The fund trades in average daily volume of 2 million shares.

Emerging Markets

Emerging markets, which were beaten down badly for most of this year owing to a strong dollar, has regained investors’ appeal on bargain prices. Additionally, political gridlocks in Washington will likely help these stocks to revive as Democrats will focus on reducing the budget deficit that would ease inflationary pressures and in turn reverse the Fed’s aggressive rate hike path. While most emerging market ETFs are benefiting, iShares MSCI Brazil Small-Cap ETF EWZS is the biggest winner in the space, surging about 24% so far this quarter (read: Time to Buy the Beaten-Down Emerging Market ETFs?).

This ETF provides targeted exposure to the Brazilian small-cap stocks by tracking the MSCI Brazil Small Cap Index. The fund holds 63 stocks in its basket and charges investors 62 bps in fees per year. It has accumulated $62.4 million in its asset base and has a Zacks ETF Rank #4 (Sell) with a High risk outlook.

Gold Mining

Though a higher dollar has taken the sheen away from gold, it is viewed as a safe investment and thus investors are flocking to this asset amid trade tensions. Acting as leveraged plays on underlying metal price, gold miners witnessed more gains than their bullion cousins. As most of the gold mining ETFs are gaining, iShares MSCI Global Gold Miners ETF RING stole the show, climbing 5.3%. This ETF follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 36 securities in its portfolio. It charges 39 bps in fees and expenses and trades in a good volume of 262,000 shares per day. The fund has been able to manage assets worth $178 million.

Utilities

The utilities sector is making the most of all the uncertainty. Being the low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil. In particular, Invesco DWA Utilities Momentum ETF PUI has gained 5.6% at the half-way mark. With AUM of $51.3 million, the ETF offers exposure to 31 companies that are showing relative strength (momentum) and tracks the DWA Utilities Technical Leaders Index. It charges 60 bps in annual fees and sees a light volume of around 7,000 shares on average. PUI has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 3 Sector ETFs & Stocks That Survived October Upheaval).

Worst Zones

Marijuana


After an astounding surge in the third quarter, the marijuana ETF is taking a beating this quarter on profit taking and weak earnings from the cannabis producer. This is especially true as ETFMG Alternative Harvest ETF MJ — the first and only pure ETF targeting the cannabis/marijuana industry — plunged 23.5%. The fund tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem, benefiting from global medicinal and recreational cannabis legalization initiatives. The fund holds 41 securities in its basket and charges 75 bps in annual fees. The ETF has AUM of $679.5 million and trades in a good volume of around 660,000 shares (read: What Went Wrong With the Marijuana ETF on Wednesday?).

Energy

After hitting highs in early October, both Brent and crude prices have been plummeting over the last six weeks or so pushing them into a bear territory. Lower oil price is a curse for energy stocks, which derive most of their revenues from selling the crude that they extract. While most of the energy ETFs have piled up heavy losses at the half-way mark, VanEck Vectors Oil Services ETF OIH has shed more than 23%. This fund tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. With AUM of $927 million, it holds 25 stocks in its basket and charges 35 bps in annual fees. The product trades in an average daily volume of more than 7 million shares and has a Zacks ETF Rank #3 with a High risk outlook (read: Oil Price on Longest-Ever Losing Streak: 5 ETF Zones to Benefit).

Biotech

Being a high-beta and high-growth sector, biotech has been beaten down badly on a broad market rout. Virtus LifeSci Biotech Clinical Trials ETF BBC has lost 21.4%. This fund has a novel approach to biotechnology investing, with exposure to companies that are in clinical trial stage. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. BBC holds 100 securities in its basket and has amassed $35.3 million in its asset base. It charges 79 bps in fees per year and trades in a light volume of around 19,000 shares. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Growth

The growth corner of the equity market has lost appeal on higher levels of volatility and uncertainty. Innovator IBD 50 ETF FFTY has stolen the show, tumbling 20.5% so far this quarter. This fund is an actively managed and looks to be the one-stop way to invest in the top 50 growth names based on IBD (Investor’s Business Daily) proprietary estimation. The IBD 50 targets companies generating outstanding profit growth, big sales increases, wide profit margins and high return on equity. This approach provides exposure to 50 stocks in the basket, charging 80 bps in annual fees. FFTY has AUM of $446.5 million and average daily volume of 267,000 shares.

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