Eric Dutram: 2012 started off as a pretty solid year for the markets as equities rose across the board in the first quarter. However, the second quarter wasn’t nearly as friendly to investors as markets slumped thanks to a number of risks.
Now, Europe appears to be on the brink once again while the American economy could teeter back into a low growth environment as well. Beyond these important economies, events aren’t going very well in emerging markets either, as worries over inflation and growth are plaguing a variety of important developing nations.
With this backdrop, a number of market sectors have performed quite poorly in the first part of the year, mostly thanks to the uncertainty in the second quarter. Thanks to this, six of the nine main sectors of the S&P 500 have posted a loss in the past three month period, suggesting that the negative sentiment is pretty widespread throughout the equity world (The Five Best ETFs over the Past Five Years).
Still, despite the overall gloomy tone in the marketplace heading into the second half of the year—and weakness in a number of segments– some ETFs have been able to perform quite nicely and are actually posting double digit gains. Below, we highlight five of these top ETF performers which have managed to stay well in the green even with a potentially crumbling economy all around them:
Dow Jones U.S. Home Construction Index Fund (NYSEARCA:ITB)
For investors seeking to make a move in the building & construction ETF space, ITB could be an interesting pick. For a pure play in the construction industry, investment in ITB is warranted (Three Construction ETFs for an Economic Recovery). The product tracks the Dow Jones U.S. Select Home Construction Index which is a broad benchmark of firms which construct residential homes including mobile and prefab domiciles.
The fund has gained 41.91% so far this year which is especially good considering the fund lost nearly 9% last year. Clearly, the shift of investor confidence in the housing sector has had a very positive impact on this fund to start the year.
In fact, prices have seemingly started to bottom out in a number of markets around the country, while low rates are helping to push some back into homes, even with the sluggish economic situation.
Thus, most homebuilding companies are witnessing better year-over-year growth in revenues, driven by an increase in new home orders and average selling prices.
The fund has assets under management of $867.8 million. It trades in volumes of 1,520,500. The fund appears to be concentrated in both sector and individual holdings. From a sector perspective, homebuilders make up more than 65% of total exposure with building materials segment holding 17.37% of total assets while home improvement firms take up 10.22%.
Looking at individual holdings pattern, it appears that its top 10 holdings make up a sizable amount of assets with 65.28% of the total. Among top 10 holdings, DR Horton Inc. (DHI) takes the top spot, closely followed by Lennar Corp. (LEN) and Toll Brothers Inc. (TOL). The fund charges an expense ratio of 47 basis points.
SPDR S&P Biotech (NYSEARCA:XBI)
The situation in the biotech industry appears to be brighter this year thanks to strong sales of many of the industry’s top drugs. Additionally, the robust pipelines of many firms could also assist some biotech companies being targeted for takeover, either by larger biotechs or by strong firms in the pharma space (Forget Big Pharma, It Is Time for A Biotech ETF).
Investors who seek choices in this segment of the market can invest in State Street’s XBI. The fund tracks the S&P Biotechnology Select Industry Index. S&P Biotechnology Select Industry Index represents the biotechnology sub-industry portion of the S&P Total Markets Index.
XBI’s performance has been pretty solid so far this year as the fund has gained just over 33.2%. Its 52-week performance has also been impressive with returns of 21.2% making it one of the top performers for both time periods (Top 3 Best Performing Healthcare ETFs).
XBI manages a $728.7 million asset base and trades with daily volume of 16,200 shares. The fund holds a basket of 50 biotech stocks and is more skewed towards mid and small cap securities.
The SPDR product invests nearly 30% of its asset base in the top 10 holdings. Top holdings include firms like Arena Pharmaceuticals, Inc. (ARNA) which takes the top spot but is closely followed by Spectrum Pharmaceuticals, Inc. (SPPI) and Onyx Pharmaceuticals, Inc. (ONXX). The fund charges an expense ratio of 35 basis points a year.
Another biotech fund that has done well is the First Trust NYSE Arca Biotechnology Index Fund (FBT) which tracks the NYSE Arca Biotechnology Index. FBT delivered a return of 34.2% year to date. It provides exposure to just 20 biotech companies while charging investors 61 basis points, much higher than XBI.
One more fund which provides exposure to biotech companies and has been in focus on account of its year to date performance is Market Vectors Biotech ETF (BBH). BBH is a Van Eck’s recently launched fund in the biotech space.
The fund was ‘launched’ in December of last year—after a conversion from the HOLDRS system– and has managed to build an asset base of $110.9 million. This is remarkable performance in such a short span. BBH has announced returns of 29.26% in the year to date time frame (Which Auto ETF Should You Take For A Ride?).
iPath DJ-UBS Grains TR Sub-Index ETN (NYSEARCA:JJG)
Thanks to the record heat wave in much of the Midwest, many key grain growing states have seen their crop output shrink in size. In fact, some are speculating that the USDA may cut its production forecast for corn by about 8.5%, the biggest July reduction since 1988.
Similar issues are also impacting the wheat and soybeans markets, as expected yields continue to plunge for these important crops. Furthermore, due to the downturn in the corn supply market, many are expected to switch to wheat or other crops for animal feed, adding to the bullish outlook for the overall grains sector.
Should this hot weather continue, or if rains fail to drop on the U.S. Corn Belt, it could continue to be great news for JJG. This ETN holds three commodity futures in its basket, allocating roughly half of its portfolio to soybeans, 30% to wheat and 24% to corn.
The fund manages an asset base of $180.7 million and trades in volumes of 126,600 shares a day. JJG charges investors a somewhat higher expense ratio of 75 basis points. JJG has delivered an outstanding return of 35.6% year-to date.
JJG’s counterpart, MLCX Grains Index TR ETN (GRU), has also performed well in the year-to date period. The fund delivered a return of 30.2%.
iShares MSCI Turkey Investable Market Index (NYSEARCA:TUR)
With its GDP exceeding $1 trillion in 2011 (PPP terms), Turkey is now the 17th largest economy in the world. Turkey introduced market reforms as per IMF bailout conditions, after suffering a financial crisis in 2001. As a result of these reforms being implemented, the country has witnessed excellent growth in the last decade (Why Russia ETFs Are Not a Debt Crisis Safe Haven).
The Turkish economy grew at an impressive 8.5% in 2011 but is expected to slow down to 2.3% in 2012 and then rise slightly to 3.2% in 2013, per IMF.
Last month, S&P revised the outlook on the country to stable from positive due to concerns that ‘less buoyant external demand and worsening terms of trade could inhibit Turkey’s economic rebalancing’. The agency maintained its sovereign rating at BB, which is two notches below investment grade (Turkey ETF: Excellent Run, But Risks Ahead).
This Turkish ETF exhibited a miserable performance last year (negative 36.3% return) but saw solid investor interest in 2012, as the economy showed remarkable resilience to in spite of the euro zone events. Looking at the year-to date performance, TUR has come a long way from the negative returns, delivering a positive return of 29.2%.
The fund trades with a net asset base of $470.9 million and hold 99 stocks. TUR appears to be concentrated in the top 10 holdings with 61.8% of asset base in these ten, although the maximum investment in any one holding does not exceed 13.2%.
From a sector perspective, financials take the top spot with 48.1% of investment closely followed by consumer staples, and industrials with 13.4% and 11.3% investment, respectively. The fund charges an expense ratio of 59 basis points to investors.
Market Vectors Egypt Index ETF (NYSEARCA:EGPT)
The Egyptian stock market and therefore the ETF performed disastrously last year due to incredible political turmoil. The fund rebounded this year on hopes of a peaceful election process, but the run has been far from smooth (Can the Vietnam ETF Continue Its Run?).
The political situation now seems to be stabilizing in Egypt, with the election of Mohamed Morsi of the Muslim Brotherhood, as the first democratically elected leader of the country. However, it would not be easy for him to put in place a stable governance system with the power-seeking judiciary and the military as partners.
For investment exposure to this volatile region, investors have EGPT which tracks The Market Vectors Egypt Index, which is comprised of companies that are domiciled in Egypt or generate at least 50% of their revenues in Egypt. The fund has $43.4 million in AUM and trades with volume of 109,100 shares a day.
The fund’s year-to date return has been excellent, delivering 30.1%, compared with the negative return of 16.1% in the one year period.
The product holds a small basket of 26 securities which are either small cap or mid cap companies. Financials enjoy the heaviest weighting in the fund (16.3%), followed by Materials (13.8%) and Real Estate (12.9%). The ETF charges an expense ratio of 94 basis points per year.
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