Top And Flop Zones Of Q1 And Their ETFs

By | April 1, 2016

Scalper1 News

The start of 2016 was the worst ever for the broader financial market, thanks to the twin attacks of the China meltdown and the oil price crash that sparked off fresh fears of a global slowdown. Additionally, a strong dollar, geopolitical tensions in the Middle East, weak corporate earnings, uncertain timing of the next interest rates hike, weakness in many developed and developing economies, and concerns over the health of the global banks added to the chaos. A slew of worries sent the major U.S. bourses into correction territory from the recent peaks, with the S&P 500 and Dow Jones plunging more than 14% (as of February 11). However, the stocks staged a nice comeback in the back half of the first quarter, recouping all the losses made in the quarter. Both the S&P 500 and Dow Jones are now in the green, having logged 1% and 1.7% gains, respectively, from a year-to-date look. This is largely thanks to extra easing policies in Europe and Japan, stabilization in the Chinese economy, and receding fears of recession in U.S. Further, the rebound in oil price from its 12-year low and the Fed’s dovish comments infused a fresh lease of life in the stock markets. All these have increased the appeal for riskier assets lately, leading to a bullish trend in stocks, though bouts of volatility are still showing up. That being said, 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 Q1 and their ETFs in detail. Best Zones Metal Mining ETFs Global uncertainty and financial market instability have brought back the lure for metals across the globe, boosting their demand. Acting as leveraged plays on underlying metal prices, metal miners tend to experience huge gains compared to their bullion cousins in a rising metal market. While all the ETFs in the mining space have enjoyed smooth trading, the PureFunds ISE Junior Silver ETF (NYSEARCA: SILJ ) is the biggest winner, having surged about 71% in value. This product provides a true small cap play on the silver mining space by tracking the ISE Junior Silver (Small Cap Miners/Explorers) Index. In total, the fund holds about 24 securities in its basket, with the largest allocation going to the top three firms – First Majestic Silver Corp. (NYSE: AG ), MAG Silver Corp. (NYSEMKT: MVG ) and Pan American Silver (NASDAQ: PAAS ). These firms combine to make for 40.3% of the fund’s assets. Canadian firms take the lion’s share at 82%, while the U.S., Peru and the United Kingdom take the remainder. The fund has managed assets worth $9.2 million and trades in a paltry volume of less than 18,000 shares a day. It charges 69 bps in annual fees. Natural Resource ETFs The natural resource segment gained immense strength in the first quarter, with robust performances in its chemical business as well as the metals & mining, and steel industries. A growing automotive market, a solid residential construction market and increasing production are boosting growth. Further, the impressive rebound of oil price from the 12-year lows hit in mid-February raised the appeal for these products. All these combinations have given a huge boost to the new ETF – the SPDR S&P North American Natural Resources ETF (NYSEARCA: NANR ) – that has accumulated $744.2 million in AUM in just three months of its debut, while surging 17% in the first quarter. Volume is solid, with the fund exchanging 490,000 shares in hand on average. The ETF offers a well-balanced exposure to the basket of natural resources companies in the energy, materials, and agriculture industries. It tracks the S&P BMI North American Natural Resources Index, charging investors 35 bps in fees and expenses. Holding 60 securities in its basket, it is highly concentrated on the top two firms – Chevron (NYSE: CVX ) and Exxon Mobil (NYSE: XOM ) – with over 9% share each. Other firms hold less than 6.2% of assets. Materials make for half of the portfolio, closely followed by 45% in energy and the rest in consumer staples. Gold ETFs After posting the third annual loss in 2015, gold is heading for its biggest quarterly gain in nearly 30 years , having risen more than 15% in the first quarter. This is especially thanks to global growth concerns, the Fed’s cautious stance on rate hikes, and the adoption of negative interest rates by most countries that resulted in risk-off trade, increasing the safe-haven appeal across the board. In particular, the PowerShares DB Gold ETF (NYSEARCA: DGL ) has been leading in this corner of the ETF world, gaining nearly 15.6%. The fund seeks to track the DBIQ Optimum Yield Gold Index Excess Return, which consists of futures contracts on gold, plus the interest income from the fund’s holdings of US Treasury securities. It has amassed $218.2 million in its asset base, while it trades in moderate volume of 64,000 shares, thereby resulting in additional cost in the form of a wide bid/ask spread beyond the expense ratio of 0.78%. The product has a Zacks ETF Rank of 3 or “Hold” rating with a Medium risk outlook. Worst Zones Biotechnology ETFs Being a high-growth and high-beta sector, biotechnology has been hit hard by the global market rout seen in January and early February. Further, sector-specific issues, including increased regulatory scrutiny over high drug prices, political uncertainty surrounding healthcare reform, soft enrollment in public health insurance exchanges, and continued deceleration in earnings growth intensified the woes. While all the ETFs in this space saw terrible trading, the BioShares Biotechnology Clinical Trials ETF (NASDAQ: BBC ) stole the show, plunging over 36% in the first quarter. The ETF provides exposure to the companies that have a primary product in Phase I, II, or III of FDA trials by tracking the LifeSci Biotechnology Clinical Trials Index. Holding 90 small cap stocks in its basket, the fund is widely spread out, as each firm holds no more than 2.23% share. BBC has accumulated $27.6 million in its asset base and charges fees of 85 bps per year. It trades in a light volume of 11,000 shares a day and has a Zacks ETF Rank of 3. Natural Gas ETFs Natural gas price has been on a wild swing since the start of the year, dropping in early March to levels not seen in 18 years on expanding supply and falling global demand. A mild winter in the U.S. and EU also dented the demand from heating for natural gas. As a result, the ETFs tracking natural gas futures have been hit, with the iPath DJ-UBS Natural Gas Total Return Sub-Index ETN (NYSEARCA: GAZ ) shedding 30.5%. 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 $5.1 million and average daily volume of 53,000 shares. Its expense ratio came in at 0.75%. Solar ETFs Solar stocks have also been victims of investors’ shift from the high-beta space and vicious oil trading given investors’ misconception that oil price and solar market fundamentals are directly related to each other. Even the encouraging industry trends, including higher panel installations, the historic Paris climate deal, the U.S. tax credit extension, and Obama’s ‘Climate Action Plan failed to revive growth in the sector. As such, the Guggenheim Solar ETF (NYSEARCA: TAN ), which offers exposure to the global solar industry, tumbled about 26%. The product follows the MAC Global Solar Energy Index and holds 29 securities in its basket, with the largest allocation going to the top three firms, which combined to make up for 21.9% share. American firms dominate the fund’s portfolio at nearly 55.9%, followed by China (17.9%) and Hong Kong (15.0%). The product has amassed $224 million in its asset base and trades in good volume of around 184,000 shares a day. It charges investors 70 bps in fees per year. Original Post Scalper1 News

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