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Top & Flop Zones of Q3 and Their ETFs

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The global stock market continued its bull run in Q3, dodging all concerns regarding Brexit, North Korea, instability in the world’s largest economy and overvaluation. The prospect of a tighter monetary policy by major central banks also tried to block the bulls.

However, strong corporate earnings, rise in metal prices, a pickup in economic activity in many parts of the world, an impressive rally in emerging markets and a weak dollar are propelling the stocks higher.

Given this, most corners of ETF investing have performed exceptionally well while a few areas are lagging. Below, we have highlighted the best and worst zones of Q3 and their ETFs in detail per xtf.com:

Top Zones

Brazil


Brazilian stocks have been on a tear with Global X Brazil Consumer ETF topping the best-performing ETF list with 43.5% gains. The economy has emerged strongly from its two-year worst recessions and is currently on an impressive growth path with stronger consumption, increasing investments and rising consumer confidence. This has led investors to bet on the economy.

The fund offers exposure to a basket of 35 stocks that operate within the consumer discretionary and consumer staples’ sectors in Brazil. It tracks the Solactive Brazil Consumer Index, charging investors 77 bps in annual fees. The product has been able to manage just $7.3 million in its asset base and has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Brazil Economy on a Roll: ETFs to Cash In On).

Commodity Producers

VanEck Vectors Rare Earth/Strategic Metals ETF (REMX - Free Report) , which offers exposure to companies engaged in producing, refining, and recycling of rare earth and strategic metals and minerals, is on fire this quarter, gaining 43.4%. The impressive rally came on the back of an expected boom in the demand for rare earth minerals. Additionally, China, which produces over 90% of the world's rare earths, has set production caps and export quotas on the metals, which has contributed to price rise.

The ETF follows the MVIS Global Rare Earth/Strategic Metals Index, charging investors 61 bps in annual fees. With AUM of $95.9 million, the fund holds 21 stocks in its basket with heavy concentration on the top three firms that collectively make up for 29.2% of the assets.

China

The Chinese economy is showing strong signs of recovery with outperformance in the manufacturing and industrial sectors. This is especially true, as China's manufacturing sector expanded for the 13th straight month in August on improving domestic demand and booming manufacturing in consumer goods and high-tech sectors. A recovering yuan also added to the strength. As a result, Global X China Materials ETF targeting the country’s material sector has been stealing the show in Q3, rising 27.6% (read: China PMI Surges: ETFs in Focus).

Holding 32 stocks in its basket, the fund is moderately concentrated on the top firms with none holding more than 7.5% share. It charges 65 bps in annual fees and trades in light volume of about 3,000 shares a day on average. The fund is unpopular with AUM of $4.3 million and has Zacks ETF Rank #3 (Hold) with a High risk outlook.

Worst Zones

Volatility


Though the war of words between President Trump and North Korea government official Kim Jong Un led to increased market uncertainty and heightened geopolitical worries, these did not snap the bullishness. As a result, volatility products were the biggest losers in the third quarter. In particular, ProShares VIX Short-Term Futures ETF (VIXY - Free Report) has tumbled 19.5%. It seeks to profit from increases in the expected volatility of the S&P 500, as measured by the prices of VIX futures contracts. The ETF focuses on the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. It has amassed $186.3 million in AUM and charges 85 bps in fees per year.

Wheat

After surging in early July, wheat price dropped sharply in the quarter despite some respite in the last few weeks. This is primarily thanks to the U.S. Department of Agriculture that raised the wheat production forecast for the 2017/2018 crop year on record Russia supplies. Notably, Russian wheat output rocketed to a record 77.5 million metric tons, beating last year's record by 5 million tons. As such, Teucrium Wheat Fund (WEAT - Free Report) shed 15.5%. This fund provides exposure to the wheat market in a unique way and reduces the effects of both contango and backwardation. It uses three futures contracts for wheat, all of which are traded on the CBOT Futures Exchange (read: Top and Flop ETFs of August: Metals Gain, Crops Crash).

The three contracts include the second-to-expire contract, weighted 35%; the third-to-expire contract, weighted 30%; and the contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%. The fund has amassed $68.8 million in its asset base and trades in good volume of about 243,000 shares a day. The product is a high cost choice in the agricultural space as it charges a fee of 2.54% per year. It has a Zacks ETF Rank  4 with a High risk outlook.

Pakistan

After a strong run-up in the first half, Pakistani stocks were caught in a nasty web of trading this quarter thanks to political turmoil and Donald Trump’s warning to Pakistan on terror safe havens. The Global X MSCI Pakistan ETF , targeting Pakistani equity markets, lost 11.3%. It tracks the MSCI All Pakistan Select 25/50 Index, holding 46 stocks in its basket with each accounting for less than 8% share. From a sector look, financials and materials occupy the top two positions at 29% and 26%, respectively, followed by energy (22%).

The ETF has a lower level of $51.9 million in AUM and is expensive relative to many emerging market funds, charging 91 bps in fees and expenses. Additionally, it trades in moderate volumes of about 64,000 shares and has a Zacks ETF Rank  #4 with a Medium risk outlook (see: all the Broad Emerging Market ETFs here).

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