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Top & Flop ETF Zones of Q1

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The first quarter was marked by immense volatility for the U.S. stock market, which rose to a record high in mid-February and then slid to a bear market in less than a month. In fact, the blue-chip stocks saw the fastest-ever bear market in this quarter due to fast spreading coronavirus, which has infected more than 819,000 people globally in more than 177 countries and claimed more than 39,000 lives.

The Dow Jones posted its worst first quarter ever, losing more than 23% of its value while the S&P 500 logged in its biggest quarterly loss since 2008, shedding about 20%. Meanwhile, Nasdaq dropped more than 14% in the first quarter.

The pandemic has resulted in lockdowns and forced people to stay indoors to contain the spread that is weighing heavily on economic growth and business activity. Layoffs have risen and jobless claims spiked unprecedentedly with businesses scaling back or temporarily shutting down their operations. Spending — the engine of the U.S. economy — has collapsed. Revenues of restaurants, hotels, movie theaters, gyms, and airlines have been badly hit with many of them on the brink of bankruptcy. Further, oil price has collapsed due to waning demand triggered by the disease. Amid mass closures of private businesses, soaring layoffs and shutdowns, market participants forecast global recession in the coming quarters (read: ETFs at Risk as US Consumer Sentiment Hits Near 3.5-Year Low).

As such, we have highlighted the best and worst performing zones of the first quarter and their ETFs:

Best Zones

Volatility


Volatility products have been the biggest winners as they outperform when the stock market crashes. Particularly, ProShares VIX Short-Term Futures ETF (VIXY - Free Report) soared 205.1% in the first quarter. The ETF focuses on the S&P 500 VIX Short-Term Futures Index, measuring the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. It has amassed $245.3 million in AUM and charges 85 bps in fees per year. The fund trades in average daily volume of around 4.7 million shares (read: Are You Expecting More Selloff? Play Volatility ETFs).

Inverse Equity

Inverse equity ETFs benefited from the persistent decline in the stock market in the recent weeks. AdvisorShares Dorsey Wright Short ETF (DWSH - Free Report) climbed 55.9% in the first quarter. It is an actively managed ETF that short sells U.S. large-cap securities with the highest relative weakness within an investment universe primarily, comprising large-capitalization U.S.-traded equities. It holds 100 stocks in its basket and charges higher annual fee of 3.07%. The product trades in moderate average daily volume of 109,000 shares and has accumulated $80.2 million in its asset base (read: 5 ETFs That Outperformed in Q1).

Treasury

The fixed income space enjoyed a huge rally on increased demand for safe havens amid coronavirus crisis. While there are many winners in this space, PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ - Free Report) has risen 31.1%. This ETF follows the BofA Merrill Lynch Long Treasury Principal STRIPS Index and holds 21 securities in its basket. Both effective maturity and effective duration of the fund are 27.23 years. This fund has a decent level of $351.2 million in AUM and a light average daily volume of 74,000 shares. It charges 15 bps in annual fees and has a Zacks Rank #3 (Hold) with a High risk outlook.

Worst Zones

Energy


The energy sector has been suffering the worst rout in many years on oil price collapse. Demand has evaporated due to the coronavirus outbreak and a price war between Saudi Arabia and Russia. In particular, Invesco S&P SmallCap Energy ETF (PSCE - Free Report) declined the most, shedding 70.4%. This fund provides exposure to the U.S. small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index. It holds 43 stocks in its basket with AUM of $7.1 million. The fund trades in average daily volume of 68,000 shares and charges 29 bps in fees per year. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook (read: Sector ETFs in Focus Amid Coronavirus Rout).

Shipping

Shipping stocks have been hammered as dry bulk freight rates dropped on shrinking demand across all vessel categories. As such, Breakwave Dry Bulk Shipping ETF (BDRY - Free Report) fell 58.6% in the first quarter. It provides exposure to the daily price movements of the near-dated dry bulk freight futures. The fund has accumulated about $12.2 million in AUM. It trades in a paltry volume of about 39,000 shares per day on average and charges a higher annual fee of 1.85% (see: all the Industrial ETFs here).

Mortgage REITs

Mortgage REITs are suffering due to large declines in prices with VanEck Vectors Mortgage REIT Income ETF (MORT - Free Report) declining 58.3%. This ETF offers exposure to the U.S. mortgage real estate investment trusts by tracking the MVIS US Mortgage REITs Index. It holds 26 stocks in its basket while charging 42 bps in annual fees. The fund trades in average daily volume of 99,000 shares and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

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