2013 was a great year for the U.S. equity markets which returned more than 30%. And with political deadlock averted and the U.S. economy regaining momentum, the stock market will likely continue its upward trend in 2014 as well (read: Best ETF Strategies for 2014).
This is especially true as activity is picking up faster in the U.S. economy. The string of economic data such as increasing manufacturing activity, rising exports, upbeat GDP growth, narrowing trade deficit, declining unemployment rate, recovering housing market and increasing consumer sentiment indicate strength in the economy.
However, the recent job report confirmed that the U.S. added fewer-than-expected jobs in December, marking the slowest job growth rate in three years. This news has raised some concerns on the continuation of Fed’s taper plans and it has taken a toll on the surging stock market (read: 3 ETFs Surging on Weak Jobs Data).
U.S. stocks have seen some sluggish trading to open up the year, thanks in part the Fed, but also profit worries. Investors are concerned since many companies lowered their estimates ahead of the earnings announcement.
Despite this, several ETFs from various sectors/industries are performing extremely well and are outpacing the broad market indices. Let’s take a look to three top performing ETFs that could be interesting picks for investors to play in the coming days. These funds not only managed to stay in the green, but also provided handsome returns YTD:
Biotech - SPDR S&P Biotech ETF (XBI)
Being a high growth and high beta sector, biotech continued its strong performance this year as well. This is largely thanks to increasing merger & acquisition activities, new investment havens in the untapped emerging markets, new drug approvals, steadily rising global health care spending and the new Affordable Care Act provisions.
XBI is the biggest winner in this space and by far the most popular choice in the biotech corner of the healthcare segment. The fund tracks the S&P Biotechnology Select Industry Index. The product has roughly $1.1 million in AUM and trades about 314,000 in volume a day, while its cost is just 35 basis points a year.
Holding 71 securities in its basket, the product is largely concentrated in the top firm – Intercept Pharmaceuticals ((ICPT - Analyst Report)) – with an 8.75% allocation. Other securities do not account for more than 2.55% of assets. About 60% of the fund’s holding goes to small cap securities while mid caps take 30% share.
In terms of performance, the product generated 61% last year and nearly 17% returns year-to-date. XBI has a Zacks ETF Rank of 1 or ’Strong Buy’ with a ‘High’ risk outlook (read: Intercept Pharma (ICPT - Analyst Report) Pushes SPDR Biotech ETF Ahead of Rivals).
Solar - Guggenheim Solar ETF (TAN)
Solar is one of the best performing sectors in 2013 and continues its bull run this year. Most of the gains in this corner of the market stem from robust panel installations, a focus on high beta and small cap stocks, and investors’ desire to add growing companies to their portfolios.
Though both the solar ETFs generated double-digit returns so far in the year, the Guggenheim Solar ETF (TAN) is up more than 11%. The fund has amassed $356.4 million in AUM and charges investors 70 bps in fees per year. Volume is good as it exchanges 447,000 shares in hand on a daily basis (read: Are Solar ETFs in Trouble?).
The product tracks the MAC Global Solar Energy Index, holding 31 stocks in its basket. The ETF is somewhat concentrated in its top 10 holdings with 54% of assets. Chinese firms dominate the fund’s portfolio with nearly 37%, closely followed by U.S. (31.30%) and Hong Kong (12.26%).
The product has a Zacks ETF Rank of 2 or ‘Buy’ rating, suggesting that the product would outperform over the next one-year period.
Mining - PureFunds ISE Junior Silver ETF (SILJ)
Acting as a leveraged play on underlying metal prices, mining stocks tend to experience more profits than their bullion cousins in the rising metal market. Mining firms were under immense pressure in 2013 on Fed tapering talks but rebounded nicely at the start of 2014 as investors are again hunting for safe investments.
Most of the mining stocks held up strongly of late, driving up many ETFs in the space. A big winner here is SILJ which provides true small cap play on the silver mining space. The fund has managed assets worth $1.5 million and trades in paltry volume of less than 5,000 shares a day. The ETF charges 69 bps in annual fees.
The product tracks the ISE Junior Silver Small Cap Miners/Explorers Index. In total, the fund holds about 26 companies with the largest allocation going to the top three firms – Fortuna Silver Mines (FSM), Endeavour Silver (EXK) and Silvercorp Metal (SVM) – which make up for nearly 12% each (see: all the materials ETFs here).
In terms of country exposure, Canadian firms dominate the fund at 76% of the total, while U.S. securities make up for 20% share. SILJ was down 52% last year but added about 8% in the year-to-date time frame.
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