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Top & Flop Zones of Q3 & Their ETFs

Sweta Killa
Below we share with you three top-ranked JPMorgan mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy).

The global stock market was kind to investors in the third quarter despite the escalation in U.S.-China tariff trade, emerging market meltdown especially Turkey and Argentina, tech sell-off and geopolitical tension. The MSCI All Countries World Index rose more than 4% buoyed by encouraging performance of the American market, which is showing strong complacency and extending its longest bull run in history.

Notably, the S&P 500 recorded its best quarterly gain since the fourth quarter of 2013, rising 7.2% buoyed by dual tailwinds of corporate earnings and a booming economy. The Nasdaq Composite climbed 7.1% — its best since first-quarter 2017 — while the Dow Jones outperformed, climbing 9.3%.  

Other asset classes like commodities or fixed income have seen mixed trading. This is because although the risk-off trade brought the precious metals and bonds in the limelight, increased confidence and improving economic growth dampened their demand. Meanwhile, Brent jumped to its highest level in nearly four years on the potential U.S. sanctions against Iran expected to kick-off in November (read: ETFs Set to Benefit/Lose From Higher Brent Prices).

That said, some corners of ETF investing have performed exceptionally well while some are lagging. Below, we have highlighted the best and worst zones of the third quarter and their ETFs in detail:

Best Zones

Pot Industry

The emerging pot stocks have been firing on all cylinders amid the backdrop of more legalization of the plant for recreational use, which has paved the way for a merger mania, spurring a large number of deal activities in the industry. As such, ETFMG Alternative Harvest ETF MJ, the first and only ETF targeting the cannabis/marijuana industry, surged 36.4% in the third quarter. It 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 (read: Pot Stocks & ETF: Risks and Rewards).

The fund holds 39 securities in its basket with higher concentration on the top four firms. Canadian firms make up 60.5% of the portfolio, while American firms comprise just 21%. The ETF has AUM of $657.3 million and trades in a good volume of around 451,000 shares. It charges 75 basis points (bps) in annual fees.


Healthcare was the best performing sector of the third quarter, having rallied 14.1%, which marks the best quarterly gain since the first quarter of 2013. The impressive performance was driven by its non-cyclical nature, which provides a defensive tilt to the portfolio in a turbulent market and encouraging industry fundamentals, including a rising M&A and positive regulatory backdrop.

While most of the healthcare ETFs gained, ARK Genomic Revolution Multi-Sector ETF ARKG stole the show, rising 15%. This is an actively managed ETF focusing on companies that are expected to benefit from extension and enhancement of the quality of human and other life by incorporating technological and scientific developments, improvements and advancements in genomics into their business. The surge in demand for artificial intelligence in the advancement of diagnoses and treatment across the healthcare spectrum has been driving this ETF higher.

The fund holds 36 stocks in its basket with higher concentration on the top three firms. About one-fourth of the portfolio is allotted to gene therapy, closely followed by targeted therapeutics (16%), instrumentation (15.5%), beyond DNA (14.8%) and bioinformatics (11.3%). The product has accumulated $338.8 million in its asset base and trades in average daily volume of 126,000 shares. It has 0.75% in expense ratio.

Aerospace & Defense

Aerospace & defense stocks ride on increased NATO defense spending, robust demand for passenger jets as well as earnings optimism. SPDR S&P Aerospace & Defense ETF XAR offers equal-weight exposure to 35 stocks by tracking the S&P Aerospace & Defense Select Industry Index. It has been able to manage $1.6 billion in its asset base, while trades in average daily volume of around 107,000 shares. It charges 35 bps in annual fees and has gained 14.9% in the third quarter. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 4 Sector ETFs That Beat the Market in Q3).  

Worst Zones


Volatility products were terrible performers in the third quarter given the accelerating economy and strong earnings optimism that raised the appeal for riskier assets. ProShares VIX Short-Term Futures ETF VIXY fell 28.1%, marking the highest decline last 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 $154.6 million in AUM and charges 85 bps in fees per year. The fund trades in average daily volume of 1.6 million shares.


Turkey has been among the worst-performing zones and the biggest losing emerging market of the third quarter. This is especially true in the backdrop of the collapse in Turkish lira, concerns about President Tayyip Erdogan's influence over monetary policy and a worsening U.S. relationship. Additionally, the Turkish economy is suffering from myriad woes, including double-digit inflation, inadequate currency reserves and one of the largest current-account deficits in emerging markets. Persistent concerns over economic stability and the Turkish government's lack of action to tackle the problems has taken a toll on its currency and the economy (read: Turkey ETF Surges Post Rate Hike).

As a result, iShares MSCI Turkey ETF TUR, which offers exposure to a broad range of companies in Turkey, shed 21.2% in the third quarter. It tracks the MSCI Turkey Investable Market Index and holds 62 stocks with none accounting for more than 7.8% of assets. The product has AUM of $458.6 million and charges 62 bps in fees per year from investors. Volume is good as it exchanges around 1.1 million shares a day on average. The fund has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.


In the commodity world, cocoa has been the worst performer, with iPath Bloomberg Cocoa Subindex Total Return ETN NIB) losing around 20.6%. This is because the price of cocoa has been on a decline in the third quarter on optimism over a strong October-to-March crop following the abundant rainfall in most of Ivory Coast’s cocoa regions. Notably, Ivory Coast is the world’s largest producer of cocoa beans.

The note follows the Bloomberg Cocoa Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on cocoa. The ETN has been able to manage $20.9 million in AUM and trades in moderate volume of 50,000 shares per day. Expense ratio comes in at 0.70%. The note has a Zacks ETF Rank #5 with a High risk outlook.

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