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Top & Flop ETF Zones of First Nine Months of 2020

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After a brutal first quarter, global stocks made a strong comeback buoyed by a surge in the U.S. stock market. The combination of unprecedented fiscal and monetary stimulus in response to the pandemic, hopes of a swift economic rebound, positive developments related to the coronavirus vaccine and rise in mergers and acquisitions drove the stocks higher.

However, volatility and uncertainty continued to block the bull run. Concerns over elevated valuation, allegations of money laundering against big banks, election uncertainty, resurgence in COVID-19 cases in the United States and Europe, and rising U.S.-China tensions weighed on investors’ sentiments (read: Minimize Volatility This Election Season With ETFs).

In the commodity world, subdued demand continued to put pressure on oil price while massive liquidity injections by central banks across the globe supported the price of precious metals, especially gold and silver though strength in dollar lately diminished some shine.

Given this, we have highlighted the best and worst-performing zones and their ETFs in the first nine months of 2020:

Best Zones

Volatility

Volatility products have been the winners due to heightened market volatility. In particular, iPath S&P 500 Dynamic VIX ETN skyrocketed 112.5%. It tracks the S&P 500 Dynamic VIX Futures Total Return Index, which is designed to dynamically allocate between the S&P 500 VIX Short-Term Futures Index Excess Return and the S&P 500 VIX Mid-Term Futures Index Excess Return by monitoring the relative implied volatility of the SP 500 Index at various points along the volatility forward curve. This ETN is unpopular and illiquid with AUM of $10.3 million and average daily volume of 4,000 million shares. The note charges 95 basis points (bps) in annual fees.

Solar

The solar industry has been on fire buoyed by the presumptive Democratic presidential candidate Joe Biden’s push for clean energy and infrastructure plans. Invesco Solar ETF (TAN - Free Report) surged 103%. It offers global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 32 stocks in the basket. U.S. firms dominate half of the fund’s portfolio, followed by China (21.6%) and Germany (5.7%). The product has amassed $1.4 billion in its asset base and trades in a solid volume of around 723,000 shares a day. It charges investors 71 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Biotech

The sector is benefiting from the COVID-19 pandemic that has kept biotech and pharma players all over the world on their toes for a vaccine or treatment. ARK Genomic Revolution Multi-Sector ETF (ARKG - Free Report) has been the biggest beneficiary, climbing 91.6%. This is an actively managed ETF, focusing on companies likely to benefit from extending and enhancing the quality of human and other life by incorporating technological and scientific developments along with improvements and advancements in genomics into their business. With AUM of $2.2 billion, the fund holds 43 stocks in its basket and has 0.75% in expense ratio. It trades in average daily volume of 804,000 shares (read: Biotech ETFs in Focus as the COVID-19 Vaccine Race Intensifies).

Worst Zones

Oil

Although oil price has strongly rebounded after the historic collapse in the wake of production cuts by major oil producers, the waning demand on second wave of COVID-19 infections kept the price lower. United States Oil Fund (USO - Free Report) is the most popular ETF in the oil space with an AUM of $4.1 billion and average daily volume of 5 million shares. The fund seeks for the average daily percentage change in USO’s net asset value, for any period of 30 successive valuation days, to be within plus/minus 10% of the average daily percentage change in the price of the Benchmark Oil Futures Contract over the same period. It has 0.73% in expense ratio (read: Energy ETFs Jump on Oil Surge Since June: Will The Rally Last?).

Cannabis

After gaining early in the year, cannabis stocks witnessed downward trading due to the potential for high tax rates in the United States, supply issues and financing concerns. As a result, Global X Cannabis ETF , which seeks to invest in companies across the cannabis industry, has declined, shedding 49.1% so far this year. The product has accumulated $12.6 million in its asset base and trades in average daily volume of 17,000 shares. Expense ratio comes in at 0.50%.

Shipping

Dry bulk freight rates dropped on shrinking demand across all vessel categories. As such, Breakwave Dry Bulk Shipping ETF (BDRY - Free Report) is down 46.7%. It provides exposure to the daily price movements of the near-dated dry bulk freight futures. The fund has accumulated about $30.3 million in AUM and trades in a small volume of about 89,000 shares per day on average. It charges a higher annual fee of 1.85%.

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