The global stock market has been on a spectacular ride this year and is heading for its best year since 2009. The rally was mainly driven by strengthening economic fundamentals, booming trade, strong corporate earnings and a rise in commodity prices. Additionally, investors' unstoppable enthusiasm for technology stocks, optimism over Trump’s tax reform as well as rise in oil price added to the strength (read: Best Performing ETFs of 2017).
However, volatility and uncertainty kept crossing the path as geopolitical tensions, political instability in Europe, Washington turmoil, Brexit concerns, and overvaluation are weighing on the markets.
Given this, 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 2017 and their ETFs:
Technology has been the start performer this year with ARK Innovation ETF ARKK topping the list with 87.3% gains. A massive surge came from encouraging industry fundamentals, a rising interest rate scenario, Trump’s tax reform, and the emergence of new technology such as cloud computing, big data, Internet of Things, wearables, drones, virtual reality devices and artificial intelligence. Additionally, the surge in bitcoin prices is a big boon for the disruptive-companies focused ETF (read: Bitcoin ETFs: What Lies Ahead in 2018?).
This is an actively managed fund focusing on companies that are expected to benefit from the development of new products or services, technological improvement and advancements in genomic revolution, Web x.0 and industrial innovation. It holds 52 stocks in its basket with none having more than 6.5% share. The ETF has amassed $382.3 million in its asset base and trades in a good average daily volume of around 150,000 shares. The expense ratio comes in at 0.75%.
Metals & Mining
VanEck Vectors Rare Earth/Strategic Metals ETF REMX, which offers exposure to companies engaged in producing, refining, and recycling of rare earth and strategic metals and minerals, is on fire gaining 79.7%. The impressive rally came on the back of an expected boom in demand for rare earth minerals. Additionally, China, which produces over 90% of the world's rare earths, has set production caps and export quotas on metals, which has contributed to price rise.
The ETF follows the MVIS Global Rare Earth/Strategic Metals Index, charging investors 61 bps in annual fees. With AUM of $152.9 million, the fund holds 21 stocks in its basket with each security accounting for less than 9.6% of the assets. It trades in good volume of 146,000 shares a day on average (read: 4 Reasons Why Investors Love Passive ETFs).
International investing is shining with WisdomTree China ex-State-Owned Enterprises Fund CXSE stealing the show. The fund is up 78.5% and offers exposure to targeted Chinese stocks that are not state-owned enterprises. The strength came from companies that belong to a new and developed China (that has stepped up efforts to upgrade manufacturing, and research and development) rather than the traditional government-run companies such as banks, energy and telecom firms (read: International Markets Beat US in 2017: 3 Best Country ETFs).
The fund tracks the WisdomTree China ex-State-Owned Enterprises Index, charging 32 bps in annual fees. Holding 136 securities in its basket, the fund is concentrated on the top two firms with a combined 18.4% exposure while others make up for no more than 6.3% share. Information technology is the top sector accounting for 33.7% share followed by consumer discretionary (22.7%) and financials (16.6%). The product has accumulated $154.7 million in its asset base while trades in a small average volume of 26,000 shares. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Though doubts over Trump’s administration, North Korea fears, Middle East tension, and the two storms heightened market uncertainty, these did not snap the bullishness. As a result, volatility products were the biggest losers this year. In particular, Rex Volmaxx Long Vix Weekly Futures Strategy ETF VMAX has tumbled 82%. It seeks to benefit from a negative correlation between the VIX Index and equity market. The ETF provides long exposure to the VIX Index by holding a combination of VIX futures contracts that are near expiration. It has amassed $2.2 million in AUM and charges 2.90% in fees per year. It sees a meager volume of about 7,000 shares a day.
Though crude prices strongly rebounded to end the year, natural gas prices remained under pressure on supply/demand imbalances. In fact, natural gas supplies have been on the rise since 2008. That said, United States Natural Gas Fund UNG has shed 42.3%. The fund provides direct exposure to the price of natural gas on a daily basis through futures contracts. It has AUM of $643.2 million and trades in volume of around 8.8 million shares per day. The fund charges 1.27% in expense ratio (see: all the Energy ETFs here).
In a commodity world, sugar has been the worst performer, with iPath Bloomberg Sugar Subindex Total Return ETN SGG losing around 30%. This is because sugar prices have fallen owing to strong sugar harvest and soft demand, leading to increased global surplus. The note tracks the Bloomberg Sugar Subindex Total Return, which delivers returns through the futures contracts on sugar. The note has an expense ratio of 0.75% and has amassed $73.4 million in its asset base. Average daily volume is moderate at 109,000 shares. The fund has a Zacks ETF Rank #2 with High risk outlook.
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WISDMTR-TR WTCH (CXSE): ETF Research Reports
REX-L VIX WFS (VMAX): ETF Research Reports
ARK-INNOVATION (ARKK): ETF Research Reports
VANECK-RAR ERTH (REMX): ETF Research Reports
SALOMON GNMA SE (SGG): ETF Research Reports
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