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ETF News And Commentary

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The U.S. equity markets started 2013 on a strong note and have delivered solid returns so far. However, the past two months were highly volatile due to the QE3 tapering talks, leading to a broad sell-off in equities, commodities, and bonds.

Equities maintained their strong performances owing to an improving economy, housing recovery and solid retail and labor market. In fact, a couple of equity ETFs have impressed with their performances so far this year and in the trailing one-year period. Interestingly, these top performers are spread across various sectors or countries and could be better plays in the current market.

This suggests that there have been winners in every corner of the space. Consequently, investors who have incurred losses from some broader-based funds this year may want to consider looking at any of the following ETFs that we have highlighted below, as these have seen impressive momentum over the past year (see more ETFs in the Zacks ETF Center):

Japan ETFs

While most Japanese ETFs have been soaring so far in 2013, a declining yen against the dollar has kept the returns in check. The Bank of Japan (BOJ) introduced aggressive monetary easing policies a couple of month ago in an effort to curb the country’s deflation levels and weaken the yen even further (read: Japan ETFs Crumble After Prime Minister's Speech).    

In such a backdrop, two ETFs – WisdomTree Japan Hedged Equity Fund (DXJ - ETF report)) and db X-trackers MSCI Japan Hedged Equity Fund (DBJP - ETF report) –were the major movers over the trailing one-year period. While the former returned more than 41%, the latter surged nearly 49% in the same time frame.

This is because both funds offer exposure to Japan and hedge against any fall in the currency. While both have seen a big rise in interest in the first half of 2013, most of the new capital has flowed into DXJ.

Year-to-date, DXJ has seen massive inflows of nearly $8.2 billion, a pretty impressive figure considering that the fund’s total AUM is $10.3 billion. This indicates that the vast majority of the fund’s assets came into the product in the first half of the year. The ETF follows the WisdomTree Japan Hedged Equity Index and charges a fee of 48 basis points on an annual basis.

DBJP on the other hand, currently has just $124.3 million in assets, with roughly $116 million of that capital coming into the fund during 2013 alone. The product tracks the MSCI Japan US Dollar Hedged Index while charging investors slightly more in fees at 0.50% a year (read: May ETF Asset Report: U.S. and Japan Prevail, Gold Suffers).

Since the country appears to boost inflation and weaken their currency, a look to these hedged products may be the way to go in the Japanese ETF space. 

Technology ETFs

The technology sector has been broadly mixed so far this year due to uncertainty surrounding some of the top tech players. While the large cap ETFs have returned in single digits, the ETFs having less exposure to the big players are the real winners (read: Three Tech ETFs Still Going Strong).

This is especially true given the impressive performance of the Guggenheim S&P Equal Weight Technology ETF (RYT - ETF report) and the PowerShares S&P SmallCap Information Technology ETF (PSCT - ETF report)). Both funds added nearly 23% over the past one-year period. These returns are far more than the two times the return for the broad tech sector, Technology Select Sector SPDR Fund (XLK).

Both funds benefited from less exposure to Apple (AAPL), which has fallen 32% over the past year (read: 3 Apple Proof ETFs). RYT has gathered nearly $88 million in AUM this year, taking the fund’s base to $192.80 million.

The fund tracks the S&P 500 Equal Weight Index Information Technology and provides just 1.39% exposure to Apple. The ETF charges 50 bps in expenses, putting it a little on the high end.

On the other hand, PSCT accumulated $36.8 million assets to reach a total of $138.5 million. The product offers up no exposure to the giant Apple by tracking the S&P SmallCap 600 Capped Information Technology Index. Instead, the fund focuses on pint-sized securities.

Alternative Energy ETFs

Alternative energy was a hot sector, crushing the broad market in the past few months by a pretty wide margin. By and large, most of the gains have actually happened in the past few months though, as strong data from solar companies and bullish reports from emerging companies have propelled the sector sharply higher (read: Clean Energy ETFs: The Real Bull Market?).

Some big companies like First Solar (FSLR), Sunpower (SPWR), CREE (CREE) and SunEdison (SUNE) have survived the vicious downturn and seen a steep surge in their share prices over the last year. In particular, Tesla Motors (TSLA) radiated optimism in the entire space with impressive earnings and a positive report from Goldman Sachs.

The ETFs having larger exposure to these companies was the best performer in the first half of 2013. The two ETFs – Market Vectors Global Alternative Energy ETF (GEX - ETF report) and the First Trust Nasdaq Clean Edge Green Energy ETF (QCLN - ETF report) – added over 51% and 54%, respectively (read: Best Performing ETFs of the First Half of 2013).

GEX attracted $9.29 million assets so far this year reaching a total base of $73.7 million. The fund follows the Ardour Global Index, charging investors 62 bps in fees per year. The ETF has a combined 31% share in these giant companies. In fact, Tesla and Cree occupy the top two positions in the basket with more than 10% of assets. 

Coming to QCLN, the fund tracks the NASDAQ Clean Edge Green Energy Index, and has accumulated around $26 million, taking the asset base to $51.9 million. Fees are a bit less for this product at 60 basis points a year. TSLA, CREE, FSLR, SPWR and SUNE are some of the elements in the top 10 holdings, and collectively make up for nearly 34% share in the basket.

The following ETFs can also be summarized in the table below:

 

ETF

Inflows for year (in millions)

AUM (in millions)

Returns (Trailing 1 Year)

YTD Returns (as of July 3)

         

DXJ

$8,191.77

$10,293.80

41.38%

27.28%

DBJP

$116.20

$124.30

48.85%

30.93%

RYT

$87.96

$192.80

22.68%

17.19%

PSCT

$36.85

$138.50

23.27%

17.99%

GEX

$9.29

$73.70

51.43%

39.76%

QCLN

$26.06

$51.87

53.98%

55.55%

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