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Top & Flop Zones of First Half and Their ETFs

The global stock market has been on a stellar ride this year and hit fresh highs on several occasions. This is especially thanks to a pickup in economic activity in many parts of the world, solid corporate earnings, a rebound in commodity prices and hopes of Trump’s reflation trade.

However, volatility and uncertainty keep crossing the path as geopolitical tensions, political instability in Europe, doubts over Trump’s administration, decline in oil price and overvaluation are weighing on the markets. Additionally, the prospect of a tighter monetary policy by major central banks as well as a technology turmoil added to the woes lately.

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 1H and their ETFs in detail:

Technology

Technology has been leading the stock world this year with ARK Innovation ETF ARKK topping the list with 48.6% gains. A massive surge came from encouraging industry fundamentals, a rising interest rate scenario, Trump’s proposed corporate 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 this disruptive-companies focused ETF (read: ETF Winner of 1H17 and its Top 5 Stocks).

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 50 stocks in its basket with none holding more than 6.12% share. The ETF has amassed $62.5 million in its asset base and trades in a paltry average daily volume of around 25,000 shares. The expense ratio comes in at 0.75%.

Emerging Markets

After many years of underperformance, low valuations have made emerging market products especially tempting for investors. In fact, Emerging Markets Internet & Ecommerce ETF EMQQ is the clear winner in this space benefiting from the dual tailwinds of emerging market and a surge in technology. This ETF targets the Internet and ecommerce sectors of the developing world by tracking the Emerging Markets Internet & Ecommerce Index. Holding 45 securities in the basket, it is concentrated on the top firms with Alibaba (BABA) and Tencent Holdings collectively making up for 17.1% share. Chinese firms account for the lion’s share with 61% while South Korea, Russia and South Africa make up for a decent exposure.

The product has accumulated $150 million in its asset base and charges 86 bps in annual fees. Volume is light with 53,000 shares exchanging hands daily on average. It has surged 41.7% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: EMQQ -- How This Little-Known ETF Beat Amazon).

Europe

Europe was the hot spot for investors for most of the first half as a large amount of money has been injected into the ETF tracking the region. According to Lipper Research, Europe ETFs saw inflows of $9.2 billion as of May while Bank of America Merrill Lynch stated that $13.7 billion of capital moved to European funds. Despite the looming political risk, the Euro zone is growing at its fastest clip in years, in fact faster than the U.S. economy. Additionally, rising wages, falling unemployment, and easing credit conditions are providing strength.

While all Europe ETFs have enjoyed smooth trading, VanEck Vectors Poland ETF PLND has turned out the biggest winner, having surged about 38.3% in terms of value. This product targets the Polish stock market by tracking the MVIS Poland Index. It holds 28 stocks with each holding no more than 8.71% of assets. The product has amassed $17.5 million in AUM and charges 60 bps in annual fees. It trades in a light average daily volume of 7000 shares and has a Zacks ETF Rank of 3 with a Medium risk outlook (see: all the European Equity ETFs here).



Worst Zones

Volatility

Though Trump’s actions and several events outside the U.S. led to increased market uncertainty and political worries, these did not snap the bullishness. As a result, volatility products were the biggest losers in the first half. In particular, ProShares VIX Short-Term Futures ETF VIXY has tumbled 51.8%. 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 $151.1 million in AUM and charges 85 bps in fees per year. It sees an impressive volume of about 2.5 million shares a day (read: The Key Things to Know When Trading Volatility with ETFs).

Energy

Overall, energy has underperformed throughout the first half with natural gas being the hardest hit. Supply and demand imbalances took a toll on prices with iPath Bloomberg Natural Gas Subindex Total Return ETN GAZ shedding nearly 51.5%. The note delivers returns through an unleveraged investment in the natural gas futures contract plus the rate of interest on specified T-Bills. It follows the Bloomberg Natural Gas Subindex Total Return Index. The product is unpopular and illiquid with AUM of $3.1 million and average daily volume of 42,000 shares. Expense ratio comes in at 0.75%.

Sugar

iPath Bloomberg Sugar Subindex Total Return ETN SGG

Sugar prices have been falling owing to strong sugar harvest and soft demand, which are raising global surplus. As such, SGG has lost 38.8% in the first half. It 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 $36.9 million in its asset base. Average daily volume is moderate at under 80,000 shares. The fund has a Zacks Rank of 5 or ‘Strong Sell’ rating with High risk outlook.



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PRO-VIX ST FUT (VIXY): ETF Research Reports
 
VANECK-POLAND (PLND): ETF Research Reports
 
ARK-INNOVATION (ARKK): ETF Research Reports
 
EM-INTRNT&ECMRC (EMQQ): ETF Research Reports
 
IPATH-BB NGAS (GAZ): ETF Research Reports
 
IPATH-BB SUGR (SGG): ETF Research Reports
 
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