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Top and Flop ETFs of October

Sanghamitra Saha

October was decent for the broader market. The S&P 500, the Dow Jones and the Nasdaq gained in the range of 0.2% to 3% in the past month (as of Oct 25, 2019). Signs of some progress in the U.S.-China trade relation, Brexit doldrums, oil price rally and mixed earnings pulled the stings of the market movement.

Below we highlight a few top and flop ETF areas of the month of October.

Best ETFs

Shipping

Very large crude carriers (VLCC) rates have spiked to all-time highs in October. The reasons being Trump administration’s imposition of sanctions on certain Chinese tanker companies, including Cosco (Dalian), on Sep 25. Notably, these sanctions were levied for carrying crude to China from Iran.

Plus, Platts Analytics expects about 60 VLCCs to move to dry docks in the fourth quarter ahead of the implementation of IMO 2020 regulations. Each scrubber installation requires around one month. As a result, Claymore/Delta Global Shipping SEA gained about 10% in the past month (read: SEA ETF in Focus on Surging Global Freight Charges).

Timber

Timber stocks and ETFs have been strong this October.Invesco MSCI Global Timber ETF CUT (up 7.7%) andiShares Global Timber & Forestry ETF WOOD (up 8.8%) were solid gainers. The timber segment is apparently a key beneficiary of housing market recovery, as timber and related products are required for new houses.

Though housing starts slipped 9.4% in September, single-family projects rose 0.3% to a rate of 918 thousand units, the highest level since January. And single-family homebuilding makes up the largest portion of the housing market.  

Also, many companies are engaged in the timber industry which has a low or negative correlation with traditional asset classes. Including this asset class in one’s portfolio provides diversification resulting in low volatility of portfolio returns.

China Real Estate

China’s property investment remained upbeat in September, helped by a rise in new construction activity. The robustness in the Chinese real estate market has also been backed by higher home prices. For the first three quarters, property investment increased 10.5% on year, compared with a 9.9% rise in the same period last year and 10.5% in the first eight months. Global X MSCI China Real Estate ETF CHIR advanced about 9.1% in the past month.

Palladium

Palladium prices have been on a tear of late. Pure-play Palladium ETF Aberdeen Standard Physical Palladium Shares ETF PALL added 7.7% in the past month (as of Oct 25, 2019). The rally has mainly been backed by growing global demand and stagnating supply. The Palladium market is on its way to an eighth consecutive year of deficit in 2019, according to specialty-chemicals company Johnson Matthey, as quoted MarketWatch.

Stringent emission control norms have been fueling demand for Palladium-using petrol-fueled cars as governments around the world look to fight climate change. Apart from environment-originated demand, a low-rate environment globally is acting as a tailwind.

A dovish Fed subdues the strength of the U.S. dollar. Since most commodities are priced in the U.S. dollar, commodities see a price rise in a low-rate environment (read: Will Palladium ETF's 2019 Rally Continue Next Year?). 

Worst ETFs

Indian Currency

Market Vectors Indian Rupee/USD ETN INR lost about 25% past monthprobably due to several rate cuts. Reserve Bank of India cut repo rate five times this year with the last reduction being enacted in early October. The central bank has also lowered GDP growth estimate from 6.9% to 6.1%. All these factors were enough to dampen the strength of the rupee.

Volatility

The broader market was more-or-less steady last month. This has understandably reduced volatility in the market. ProShares VIX Short-Term Futures ETF VIXY and iPath Series B S&P 500 VIX Short-Term Futures ETN VXX lost about 16% each on Oct 25.

Cannabis

Many marijuana stocks suffered last month following Canadian grower Hexo’s lowering of its fourth-quarter revenue forecast and withdrawal of its fiscal 2020 outlook. Global X Cannabis ETF POTX, Amplify Seymour Cannabis ETF CNBS, AdvisorShares Pure Cannabis ETF YOLO, The Cannabis ETF THCX and Cambria Cannabis ETF TOKE lost in the range of 3.8% to 7% in the past month.

Solar

Invesco Solar ETF TAN lost 1.2% in the past month. First Solar’s earnings weakness has been one of the reasons for the pain in the space. Also, investors should note that solar ETF has rallied 27.7% this year. So, any weakness in the space was likely to cause an instant slump due to overvaluation concerns.

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Invesco MSCI Global Timber ETF (CUT): ETF Research Reports
 
iShares Global Timber & Forestry ETF (WOOD): ETF Research Reports
 
ProShares VIX Short-Term Futures ETF (VIXY): ETF Research Reports
 
Aberdeen Standard Physical Palladium Shares ETF (PALL): ETF Research Reports
 
Invesco Shipping ETF (SEA): ETF Research Reports
 
iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX): ETF Research Reports
 
Invesco Solar ETF (TAN): ETF Research Reports
 
Market Vectors-Indian Rupee/USD ETN (INR): ETF Research Reports
 
The Cannabis ETF (THCX): ETF Research Reports
 
AdvisorShares Pure Cannabis ETF (YOLO): ETF Research Reports
 
Global X MSCI China Real Estate ETF (CHIR): ETF Research Reports
 
GLBL-X CANNABIS (POTX): ETF Research Reports
 
Cambria Cannabis ETF (TOKE): ETF Research Reports
 
Amplify Seymour Cannabis ETF (CNBS): ETF Research Reports
 
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