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Top & Flop ETFs Halfway Through Q4

Sweta Killa

The fourth quarter brings strong gains for Wall Street buoyed by easing U.S.-China trade worries, stronger-than-expected corporate earnings and Fed’s third rate cut. The S&P 500 breached the 3,100 level for the first time ever last week and rallied for the sixth consecutive week, its longest winning streak since November 2017. Meanwhile, the Dow Jones topped the 28,000 milestone (read: 10 Best Performing Stocks of S&P 500 ETF).

The fixed income world, which saw astounding strength due to trade issues, started to falter with risk-on sentiments and rise in yields. The bullish backdrop has also diminished the safe haven appeal, pushing precious metals down, in particular gold and silver.

Given this, many corners of the market have seen smooth trading while a few are still lagging. Below we have highlighted ETFs from the best and worst zones at the halfway mark in Q4.

Best Zones

Healthcare


The healthcare sector is outperforming this quarter driven by a slew of positive news flow, including trial results and deal activities, and better-than-expected corporate earnings. In particular, Biogen BIIB spread optimism following its Alzheimer’s treatment report. While most of the ETFs in the healthcare space have been surging, iShares U.S. Healthcare Providers ETF IHF tops the list, having gained nearly 18% so far this quarter.

This ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 49 securities in its basket with each making up for no more than 22.71% of assets. The fund has amassed $839.4 million in its asset base, while volume is moderate at about 67,000 shares per day on average. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Healthcare ETF Tops in October: 5 Best Stocks).

Semiconductor

The trade deal optimism is leading to a surge in the semiconductor corner of the broad technology sector given its significant exposure to China. Additionally, strong earnings from some of the well-known players in the industry are driving the sector higher. First Trust Nasdaq Semiconductor ETF FTXL spiked 14%. It offers exposure to the 29 most-liquid U.S. semiconductor securities based on volatility, value and growth by tracking the Nasdaq US Smart Semiconductor Index. It has accumulated $39.5 million in AUM and trades in average daily volume of 14,000 shares. It charges 0.60% in expense ratio and has a Zacks ETF Rank #3 (read: Market-Beating Sector ETFs Year to Date).

Inverse Bond

The yield curve, which had inverted earlier, is now back to its normal shape. The Fed began buying short-term Treasury debt last month as it tries to keep the money markets functioning smoothly. Further, optimism regarding trade talks sent the yields higher. As such, Barclays Inverse US Treasury Composite ETN TAPR is the star performer in the bond space, having risen about 12%. It provides investors a unique strategy to benefit from rising U.S. interest rates by tracking the Barclays Inverse US Treasury Futures Composite Index. This benchmark employs a strategy, which follows the sum of the returns of the periodically rebalanced short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. The ETN has accumulated $7.9 million in AUM and trades in light volume of about 2,000 shares per day on average. It charges 43 bps in annual fees (read: Top and Flop ETFs of Last Week).

Worst Zones

Marijuana


The hype regarding marijuana stocks has faded with many of them losing two-third or more of their value in a few months. Then, a wave of disappointing earnings added to the chaos. While all the marijuana ETFs declined, Global X Cannabis ETF POTX led the way higher, losing 28.5%. This ETF, which seeks to invest in companies across the cannabis industry, tracks the Cannabis Index and holds 26 stocks in its basket with none accounting for more than 8.31% of assets. It has accumulated $3 million in its asset base within two months of debut and trades in average daily volume of 11,000 shares. Expense ratio comes in at 0.50%.

Currency

After skyrocketing in the first nine months, the overlooked Market Vectors-Indian Rupee/USD ETN INR has shed more than 28% so far this quarter. The decline stemmed from several rate cuts. Reserve Bank of India cut repo rate five times this year with the last reduction being enacted in early October. The product tracks the performance of the S&P Indian Rupee Total Return Index and has accumulated $1 million in its asset base. The ETN charges 55 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.

Volatility

Volatility has taken the back seat this quarter on bullishness in the stock market. As such, volatility products are the losers with iPath Series B S&P 500 VIX Short-Term Futures ETN VXX stealing the show and shedding 26.7%. This is a popular option providing exposure to volatility that sees a truly impressive average volume of about 31.8 million shares a day. The note has amassed $963.2 million in AUM and charges 89 bps in fees per year. 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 of VIX futures contracts (read: Market-Beating Sector ETFs Year to Date).

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