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The US stock market enjoyed another Santa Claus Rally in 2013 as the major U.S. benchmarks saw the biggest jump in the final days of the year, leading to multi-year record high levels.
The S&P 500 added 0.8% in the final four trading sessions of the calendar year and 2.3% in December, clearly outpacing the historical average returns of 1.9% (read: Santa Claus Rally: 3 ETFs on the Nice List). The string of positive data in the economy such as strong home sales and durable goods data as well as improving jobless claims also supported the rally.
While many ETFs emerged winners from this trend, some generated above-average returns between Christmas and New Year. Below, we have highlighted three ETFs that benefited the most from the Santa Claus Rally. In fact, these funds are from different corners of the ETF space and could continue their outperformance in the New Year as well:
Market Vectors Solar Energy ETF (KWT - ETF report)
This is the top performing ETF of the Santa rally, adding 5.7% in the same period. The fund has amassed $21.8 million in its asset base and charges investors 66 bps in fees per year. Volume is however light as it exchanges under 8,000 shares per day in hand (read: Solar ETFs Stay White Hot, What's Behind the Surge?).
The product provides broad exposure to global solar stocks by tracking the Market Vectors Global Solar Energy Index. Holding 21 securities, the fund puts nearly 60% of assets in top 10 holdings and focuses more on mid and small caps. In terms of country exposure, U.S. firms take roughly 37% of the portfolio, closely followed by China (26.5%) and Taiwan (19.5%).
ProShares Global Listed Private Equity ETF (PEX - ETF report)
This fund offers wide exposure to the world of private equity and gained 5.6% in the last four trading sessions of 2013. The ETF follows the LPX Direct Listed Private Equity Index, holding 30 stocks in its basket. It is heavily concentrated in its top 10 holdings with more than 69% of assets (read: Inside ProShares' New Private Equity ETF (PEX - ETF report)).
The top three holdings – 3i Group, Ares Capital and Onex Corp. – make up for a combined 31% share. American firms dominate the fund’s portfolio at 48%, followed by double-digit exposure to United Kingdom (19%) and France (11%).
PEX is unpopular and illiquid with AUM of $4.3 million and average daily volume of under 1,000 shares. The product is the high cost space in the ETF world, charging 3.13% in annual fees.
Japan Hedged SmallCap Equity Fund (DXJS - ETF report))
This fund offers exposure to small cap Japanese stocks while at the same time provides hedge against any fall in the Japanese yen. This is done by tracking the WisdomTree Japan Hedged SmallCap Equity Index. The fund has amassed $48 million in its asset base in its six months of debut while sees moderate volume of nearly 22,000 shares a day. It charges 58 bps in fees and expenses.
In total, the product holds 518 securities in its basket, which are widely spread across each security. None of the securities holds more than 0.91% of the total assets, suggesting no concentration risk. From a sectors look, industrials and consumer discretionary take the top two spots with a combined 51% share.
Further, in terms of currency hedge, the fund looks to enter into forward currency contracts or futures designed to offset exposure to the Japanese yen. Thus, the fund looks to outperform when the yen is sliding, and underperform unhedged benchmarks when the yen is strengthening (read: Time to Bet on Japan Hedged Equity ETFs?).
Though these products have easily outpaced the broad market funds by wide margins in the final four days of 2013, they slid at the start of the New Year. However, this dip seems to be short lived (read: 7 ETFs to Buy in 2014).
As the economy continues to show gradual improvement driving the stock market higher, these products could be exciting choices for investors in the coming weeks.
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