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Best & Worst Zones of 1H 2018 and Their ETFs

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After a blockbuster start to 2018, the global stock market is caught in a vicious circle of volatility and uncertainty. This is especially thanks to a series of challenges including growing inflationary threats, surge in yields, tech selloff, and protectionist and anti-trade Trump policies.

In particular, the escalating tit-for-tat tariff talks between the United States and its major allies, especially China that has led to fears of global recession was the major culprit that sent the global stocks into a tailspin lately (read: 5 ETF Ways to Hedge Stock Market Volatility).

However, strong corporate earnings and an improving economy buoyed by an impressive labor market, higher wages, increasing consumer spending and record consumer confidence are fueling confidence in riskier assets. Notably, the U.S. economy has expanded for nine years and the United States has now entered its second-longest expansion phase since 1785.

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 1H and their ETFs in detail:

Best Zones

Volatility


The rounds of Trump’s tariff threats across its major trading partners and retaliation by them have led to increased market uncertainty. As a result, volatility products were the biggest gainers. In particular, Rex Volmaxx Long Vix Weekly Futures Strategy ETF has surged 73.1%. It seeks to benefit from a negative correlation between the VIX Index and the 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 $2.9 million in AUM and charges 2.85% in fees per year. It sees a meager volume of about 9,000 shares a day.

Healthcare

The healthcare sector has been on a rise driven by tax reform, rising M&A and a positive regulatory backdrop. While there are many winners in this sector, Invesco S&P SmallCap Health Care ETF (PSCH - Free Report) gained the most by 30.6% due to its small-cap focus. Small caps have been investors’ darlings in recent months as these have less international exposure and generate most of their revenues from the domestic market and thus less vulnerable to trade war (read: 5 Hottest Small-Cap ETFs of 2018).

This fund tracks the S&P SmallCap 600 Capped Health Care Index, holding 72 securities in its basket with none accounting for more than 4.31% of assets. The ETF has amassed $752.1 million in asset base and trades in lower volume of about 56,000 shares per day. It charges 29 bps a year from investors and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Technology

Despite the wild swings and trade war fears, the technology sector has retained the hot spot for investors in the first half given the dual tailwinds of a rising rate scenario and the new tax repatriation policy. The emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, and artificial intelligence (AI) as well as strong corporate earnings are acting as the key catalysts.

The SPDR S&P Internet ETF (XWEB - Free Report) targets the Internet corner of the broad tech space, climbing 28.2%. It tracks the S&P Internet Select Industry Index and holds 71 stocks in its basket with an equal-weight exposure of around 2%. The fund has accumulated $34.4 million in its asset base and charges 35 bps in fees from investors. It trades in a light volume of under 6,000 shares a day on average and carries a Zacks ETF Rank #3 (read: 3 Tech ETFs Upgraded to Top Rank Amid Trade Fears).

Worst Zones

India


Thanks to the dual attack of higher oil price and strength in U.S. dollar, India is the worst performing zone and the biggest losing emerging market of 1H. While most India ETFs saw rough trading, VanEck Vectors India Small-Cap Index ETF (SCIF - Free Report) targeting the small-cap segment stole the show, shedding 30.1%.

It tracks the MVIS India Small-Cap Index and holds 200 securities in its basket with none making up for more than 2.6% of the assets. The fund has so far amassed $205.6 million in its asset base, while charging 72 bps in annual fees. Volume is light, exchanging around 62,000 shares in hand a day. SCIF has a Zacks ETF Rank #3 with a High risk outlook (read: India ETFs Spike on First Rate Hike in 4 Years).

Turkey

The sell-off in the lira, double-digit inflation, and persistent concerns about economic stability has hit the Turkey stocks badly. In fact, Turkey’s main stock index dropped to the lowest level in dollar terms since the global financial crisis in 2008. As such, iShares MSCI Turkey ETF (TUR - Free Report) , which provides a pure play exposure to 62 Turkish stocks, tumbled 28.4%.

The fund has been able to manage $294 million in its asset base and trades in solid volume of about 418,000 shares per day on average. The fund charges 62 bps in annual fees from investors and has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook (read: $8 Trillion Worth of EM Stocks in a Bear Market: ETFs to Play).

Brazil

Brazil stocks are also caught in a web of political uncertainty along with declining currency, pushing First Trust Brazil AlphaDEX Fund (FBZ - Free Report) down 25.5%. The fund follows the NASDAQ AlphaDEX Brazil Index and holds 50 stocks in its basket with each accounting for less than 5.4%. It has $6.7 million in AUM and trades in paltry volume of under 10,000 shares. It charges 80 bps in annual fees and has a Zacks ETF Rank #4 (Sell) with a High risk outlook.

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