Despite a host of concerns, 2014 has so far been a great year for some corners of the investment universe. Though a brutal winter, a round of geopolitical crises, global growth worries and valuation concern in the U.S. paralyzed the country’s stock markets in Q1, we have seen strength in one segment of the investing world, namely, commodities.
Several natural resource ETFs were among the winners in the first half of 2014 scoreboard, while India was the only nation that breezed past the world on a sweeping election win for Modi. Though the overall bias was for safe assets in the marketplace, commodity and India ETFs posted huge gains so far this year.
Below, we discuss five of these best performing ETFs of 1H14. All five have beaten out the S&P 500 (up 6.84% till date), which is no small feat. The highest performer outdid the S&P 500 by 10 times while lowest performer of our list beating out the key benchmark by five times (read: 4 Agricultural Commodity ETFs Soaring in 2014).
Coffee – Dow Jones-UBS Coffee ETN (JO)
Coffee made an impressive comeback after a steep fall last year thanks to Brazilian drought concerns, which pushed up coffee prices. Notably, Brazil is the top producer and exporter of coffee. Thus the main coffee ETN, JO, has returned nearly 61.5% so far in 2014 (read: Will Coffee ETFs Continue to Brew Returns in Q2?).
This ETN follows the Dow Jones-UBS Coffee Subindex Total Return, which seeks to deliver returns through futures contracts on coffee. The product trades in solid volumes of around 170,000 shares on average daily basis, ensuring a slightly extra cost in the form of a relatively tight bid/ask spread beyond expense ratio of 0.75%. The note has attracted $87.9 million in assets so far this year.
However, the prices started to pull back from May on easing supply concerns and the commodity incurred a loss of about 13.5%, erasing some prior gains. JO currently has a Zacks ETF Rank of #3 (Hold) with a High risk outlook. Another coffee ETN – Pure Beta Coffee ETN (CAFE) – also gained 55.28% showcasing how great returns were for the space to start the year.
India – India Small-Cap Index ETF (SCIF)
If any country ETF deserved applause in the first half of this year, it was India. The country’s small-cap market surged 50% this year till mid June. This surge in the markets was driven by the Narendra Modi led Bharatiya Janata Party’s (BJP) win in the general election held in mid May. Pro-reform Narendra Modi as India’s prime minister raised optimism about the nation and stocks skyrocketed. Thus, small-cap India ETF SCIF surged 59.91% this year.
This small cap ETF follows the Market Vectors India Small-Cap Index. Unitech, Suzlon Energy and Jain Irrigation Systems occupy the top three positions in the basket with a combined 10.8% of assets.
With respect to sector holdings, financials and consumer discretionary take the top two spots at 24.7% and 22.5%, respectively, while health care (2.4%) and energy (2.0%) round out the top four positions.
The ETF invests about $395.9 million in assets with 94 stocks and trades in volume of nearly 250,000 shares a day, though there might be some extra cost in the form of a wide bid/ask spread beyond the expense ratio of 0.93%. SCIF has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
However, higher oil prices due to tension in Iraq, profit booking activity and poor monsoon season – the precondition for India’s irrigation system -- pushed the markets lower in recent trading (read: Bear Market for India ETFs Following Modi's Election?).
Silver Mining – PureFunds ISE Junior Silver ETF (SILJ - ETF report)
Thanks to investors’ search of safe haven assets, silver and gold prices dominated the headlines this year. While both types of bullion have performed well, the surge was more intense in the respective mining ETFs’ space, as the latter often trades as a leveraged play on the underlying metal.
As a result, SILJ – a true small cap play on the silver mining space – soared 46.73% this year. As we know, when a sector trends upward, small caps normally register a higher price jump than the large caps tracking the same segment (read: Can the Run Continue for Silver Mining ETFs?).
The fund has managed assets worth $7.3 million and trades in a paltry volume of more than 15,000 shares a day. The ETF charges 69 bps in annual fees.
In total, the fund holds about 24 companies with the largest allocation going to top three firms – Mag Silver, Fortuna Silver and Silver Standard – which make up for more-or-less 12% each. In terms of country exposure, Canadian firms dominate the fund at 73% while U.S. securities make up for a 25% share.
Silver is used heavily in industrial activities. With China returning to health and seeing an upturn in manufacturing activity, this ETF should perform well in the coming weeks.
Gold Miner – Gold Explorers ETF (GLDX)
Both silver and gold miner ETFs share the same reason for shooting up – brightening the appeal for safe havens. Following the trend, small-cap gold exploration ETF – GLDX – leaped 42.73%.
This ETF provides exposure to the small basket of 21 gold mining firms by tracking the Solactive Global Gold Explorers Index. The product has $48.2 million in AUM and sees roughly 50,000 shares in average daily volume. Expense ratio came in at 0.65% (read: Can Gold Mining ETFs Dazzle in 2014?).
Atac, Papillon and Novagold – the top three holdings of the fund – make up for more-or-less 7% each of total assets. Canada takes the largest share with 84% of GLDX.
Nickel – DJ-UBS Nickel Total Return Sub-Index ETN (JJN)
Nickel prices had a steep run-up this year due to a ban on export of mineral ores in Indonesia – the world's biggest producer and exporter of nickel and tension in Russia – which takes the second position in terms of nickel production. Thanks to this, nickel ETN, JJN, gained 34.31%.
This ETN tracks the Dow Jones-UBS Nickel Subindex Total Return. The index delivers returns through an unleveraged investment in the futures contracts on nickel and currently consists of one futures contract on the commodity.
The fund has amassed about $15.3 million in assets. JJN currently has a Zacks ETF Rank of 2 or Buy rating with a High risk outlook (read: Is a Tough Time Ahead for Nickel ETFs?).
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