ETFs from Best & Worst Zones of Q1

After a blockbuster start to 2018, the rally in the global stock market fizzled out to end the quarter. This is especially thanks to a series of challenges including inflation fears, speculation of faster-than-expected rates hike, Washington turmoil, and protectionist and anti-trade Trump policies. A massive tech selloff was the major culprit that sent the global stocks into a tailspin lately (read: 5 Reason Why FANG ETFs Lost Their Charm in March).

American equities are on track for the worst quarter since 2015 while European equities also saw the worst slump in two years. In fact, the S&P 500 has shed about $2.34 trillion since late January and erased 40% of market cap gains since Donald Trump was elected to office. Investors should note that the Trump rally has boosted global markets in a big way in more than a year. Now with the rally fading, global markets have been hit hard.

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, solid corporate earnings and the new tax legislation dampened their demand.  

That said, some corners of ETF investing have performed well while some are lagging. Below, we have highlighted the best and worst zones of Q1 and their ETFs in detail:

Best Zones

Volatility

Volatility has been the key theme in the first quarter as the CBOE Volatility Index (VIX), also known as the fear gauge, traded in a wide range of high of more than 50 and a low of below 9. As a result, volatility products were the biggest gainers. In particular, Rex Volmaxx Long Vix Weekly Futures Strategy ETF VMAX has surged 100%. It seeks to benefit from a negative correlation between the VIX Index and the 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 $3.3 million in AUM and charges 2.90% in fees per year. It sees a meager volume of about 11,000 shares a day.

Cocoa

After two consecutive annual declines, cocoa prices are up this year owing to shrinking supply that will likely lead to smaller surplus in the 2017/18 season. Dry weather conditions seem to have hurt the crop in Ivory Coast — the world’s largest producer of cocoa beans. Notably, 70% of the world’s cocoa comes from West African nations like Ghana and Ivory Coast. Added to the strength is concern of the cacao swollen shoot virus devastating production (read: 3 ETF Areas Up At Least 15% This Year).

iPath Bloomberg Cocoa Subindex Total Return ETN NIB has gained 39%. It 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 $45.7 million in AUM and trades in good volume of 107,000 shares per day. Expense ratio comes in at 0.70%. The note has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.

Biotech

The biotech sector got a boost from its non-cyclical nature, which provides a defensive tilt to the portfolio in a turbulent market. Also, a wave of mergers and acquisitions and encouraging trends including faster drug approvals, new products and Trump’s tax reform have added to the strength. While most of the biotech ETFs have performed remarkably well, Loncar Cancer Immunotherapy ETF CNCR climbed the most with 20.3% gains.

The ETF tracks the Loncar Cancer Immunotherapy Index and provides exposure to a basket of 31 companies that develop therapies to treat cancer by harnessing the body’s own immune system. The ETF has amassed $63.7 million in its asset base and trades in a lower average daily volume of around 29,000 shares. The expense ratio comes in at 0.79%. The product carries a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 3 Sector ETFs That Gained Double-Digits in Q1).

Worst Zones

Sugar

In the commodity world, sugar has been the worst performer, with iPath Bloomberg Sugar Subindex Total Return ETN SGG losing around 21.2%. This is because sugar price is falling, hitting new lows on several occasions thanks to bumper production and soft demand. 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 $64.14 million in its asset base. Average daily volume is good at 102,000 shares. The fund has a Zacks ETF Rank #4 (Sell) with a High risk outlook.

India

India has been among the worst-performing zones and the biggest losing emerging market of Q1. This is especially true as a reintroduction of tax on long-term capital gains kept middle-class investors away from the equity market. Additionally, a $2 billion bank fraud and lower earnings growth compared with other developing markets have added to the worries. While most India ETFs saw rough trading, Columbia India Small Cap ETF SCIN targeting the small cap segment, stole the show shedding 17.2%.

It tracks the Indxx India Small Cap Index and holds 71 securities in its basket. The fund has so far amassed $28.8 million in its asset base while charging 76 bps in annual fees. Volume is light, exchanging around 15,000 shares in hand a day. SCIN has a Zacks ETF Rank #2 (Buy) with a High risk outlook

Energy

Oil price is recoiling lately after ending a five-month streak of gains in February on continued supply cuts by OPEC, Middle East tensions and the possibility of further falls in Venezuelan output. However, record oil production in the United States, higher crude inventories and a firming dollar continued to weigh on the commodity and energy stocks. As such, energy ETFs remained under pressure with SPDR S&P Oil & Gas Equipment & Services ETF XES plunging 17.1% (read: Energy ETFs Rally: Will the Gains Last?).

With AUM of $322 million, this fund tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry. It holds 39 securities in its basket and charges 35 bps in annual fees. The fund trades in a solid average daily volume of 766,000 shares and has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.

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LONCAR CANCER (CNCR): ETF Research Reports
 
REX-L VIX WFS (VMAX): ETF Research Reports
 
SPDR-SP O&G EQP (XES): ETF Research Reports
 
IPATH-BB COCO (NIB): ETF Research Reports
 
COL-INDIA SC (SCIN): ETF Research Reports
 
SALOMON GNMA SE (SGG): ETF Research Reports
 
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