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Top & Flop ETFs of the New Year

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The strong momentum seen in 2017 continues this year with stock markets across the globe  witnessing an upside. MSCI World Index has  risen  in eight of the nine trading sessions so far this year. This is primarily thanks to an uptick in global economic growth, low inflation, tightening monetary stance by major central banks, and increasing oil price.

On the Wall Street, the S&P 500 and Nasdaq registered eight record closings  in the first nine trading days of 2018, while the Dow boasted its sixth closing high of the year. Per CNBC, the S&P 500 is enjoying its best 10-day start to a year since 2003, climbing 4.2% buoyed by stronger-than-expected corporate earnings and a slew of upbeat economic data (read: Top-Ranked ETFs Crushing the S&P 500 to Start 2018).

Meanwhile, yields are on the rise with two-year U.S. Treasury yields topping 2% for the first time since the financial crisis while the U.S. dollar slumped to a more than three-year low against the euro on speculation that the European Central Bank is preparing to reduce its stimulus. A weak dollar is providing ample strength to the commodities market, which saw a powerful start to the year.  

Given this, we have highlighted some ETFs that are off to a good start in 2018 and some that have had a rough start:

Best ETFs

Global X MSCI Nigeria ETF (NGE - Free Report)

Nigerian stocks are leading the global market rally  in the first two weeks of  the New Year buoyed by a jump in oil prices and the continued strength in the economy, which pulled the country out of recession in the second quarter. Additionally, impressive valuations are making stocks tempting to investors. Nigerian stocks are the cheapest among the major African equity indexes trading at a forward price-to-earnings ratio of 10.2 compared to 14 for the South African index and 13 for the MSCI Emerging Market Index (read: 10 Hottest ETF Themes for 2018).

As such, NGE, which offers exposure to the largest and most liquid Nigerian securities, soared 15.9% in the first two weeks of 2018. Holding 23 stocks in its basket, the fund has heavy concentration on the top two firms, which collectively make up for 25.4% share. It has accumulated $86.4 million in its asset base and has 1.10% in expense ratio. Average daily volume is lower at 23,000 shares. However, NGE has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.

iPath Pure Beta Cotton ETN

Cotton continues its stellar run this year after witnessing its best rally since 1998 in 2017. Soaring exports are eating away some of the 2017-18 crop harvest for the commodity, thereby resulting in a spike in cotton prices. The data from the US Department of Agriculture recorded a bumper start to 2018 for cotton export sales as the first week turned out to be its strongest week for shipments since July.

This ETN targets the cotton segment of the broad agricultural commodity market by tracking the Barclays Cotton Pure Beta Total Return Index. Unlike many commodity indices, this index offers roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology. The product has managed assets of $0.7 million and charges 75 bps in fees per year from investors. Average daily volume is paltry at 1,000 shares. The ETN has gained 15.1% in the initial weeks of 2018 but has a Zacks ETF Rank #5 with a High risk outlook.

iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report)

The energy sector has been stealing the show in the U.S. equity world since the start of the New Year, given that oil price is on a fantastic run, thanks to geopolitical uncertainty, tightening supply, and soaring demand. While most of the energy ETFs are seeing huge spike, IEZ has jumped 12.2% so far this year. This fund offers exposure to 35 U.S. companies that provide equipment and services for oil exploration and extraction. Schlumberger (SLB - Free Report) and Halliburton (HAL - Free Report) are the top two firms accounting for 17.2% and 10.6% of its assets, respectively.

The product has accumulated $268 million in AUM and charges 44 bps in annual fees. It trades in moderate volume of 80,000 shares and has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Energy ETFs & Stocks Soaring to Start 2018).

Worst ETFs

iPath US Treasury Steepener ETN (STPP - Free Report)

The continuation of the stunning flattening yield curve as measured by the spread between the 10-year and 2-year Treasury yields has been piling up heavy losses for this ETN. This is because the note directly capitalizes on rising interest rates and performs better when the yield curve is rising. The ETN looks to follow the Barclays US Treasury 2Y/10Y Yield Curve Index, which delivers returns from the steepening of the yield curve through a notional rolling investment in the U.S. Treasury note futures contracts.

The fund takes a notional weighted long position in 2-year Treasury futures contracts and a weighted short position in 10-year Treasury futures contracts. STPP charges 0.75% in fees and expenses while volume is light at around 3,000 shares. It has AUM of $4.1 million and has shed 11.1% so far this year (read: Yield Curve Flattens: Profit From This ETF).  

Rex Volmaxx Long Vix Weekly Futures Strategy ETF

Given the strong complacency in the stock market, volatility has taken a back seat. In particular, VMAX has tumbled 8.7%. It seeks to benefit from a negative correlation between the VIX Index and equity market. The ETF provides long exposure to the VIX Index by holding a combination of VIX futures contracts that are near expiration. It has amassed $2.1 million in AUM and charges 2.90% in fees per year. It sees a meager volume of about 7,000 shares a day (read: Top & Flop Zones of 2017 and Their ETFs).

iShares Residential Real Estate ETF (REZ - Free Report)

Real estate is one of the worst performing sectors to start the year as stronger economic growth and signs of higher inflation have renewed expectation for rising interest rates resulting in sector rotation to more growth-oriented  areas. With AUM of $349.6 million, this ETF provides exposure to the U.S. residential real estate sector, holding 44 stocks in its basket with none accounting more than 9.81% share. It trades in average daily volume of 33,000 shares while charging 48 bps in annual fees. The fund has lost 6.8% in the same time frame and has a Zacks ETF Rank #4 with a Medium risk outlook.

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