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Best & Worst Zones of 2018 and Their ETFs

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After a roaring start to 2018, stock markets across the globe have been on a tumultuous ride triggered by a myriad of woes, including growing inflationary threats, surge in yields, tech selloff, tariff war, slowing growth in emerging and developed markets, and the flattening of U.S. yield curve that has sparked threats of a global slowdown. In fact, the global equities have erased about $13 trillion from its market value this year.

Oil slipping into the bear territory lately has led to further caution among investors. Meanwhile, commodities have been on the longest losing streak in more than three years. However, gold regained shine in the fourth quarter on global headwinds and a dovish Fed outlook that has boosted demand for the metal.

However, strong corporate earnings and an improving economy buoyed by an impressive labor market, higher wages, increasing consumer spending and rising consumer confidence fueled confidence in riskier assets. Notably, the American economy is on track this year to expand at the fastest pace in 13 years (read: How to Play Dow's Best-Ever Gains With ETFs).

Given this, a few corners of ETF investing have performed exceptionally well while some areas are lagging. Below we have highlighted the best and worst zones of 2018 and their ETFs in detail:

Best Zones

Volatility

Volatility products have been the biggest winners as they outperform when investors are skeptical about market direction. In particular, VelocityShares Daily Long VIX Short-Term ETN (VIIX - Free Report) has surged nearly 75% this year. The product is linked to the daily performance of 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 $26.1 million in AUM and charges 75 bps in fees per year. The fund trades in average daily volume of 160,000 shares.

Natural Gas

Natural gas prices were on the rise this year thanks to tightening demand/supply imbalance. The United States entered the winter drawdown season with natural gas storage levels at their lowest level in 15 years. Additionally, seasonality plays an important role in driving the price higher. Cold spring, hot summer and a cold start to winter in November led to higher demand for natural gas. That said, United States Natural Gas Fund (UNG - Free Report) has risen 23.8%. The fund provides direct exposure to the price of natural gas on a daily basis through futures contracts. It has AUM of $371.8 million and trades in volume of around 4 million shares per day. The fund charges 1.30% in expense ratio (read: 5 ETFs Up At Least 10% in Tumultuous Q4).

Qatar

The Qatar economy rebounded strongly from the trade and travel ban imposed on the country last year by its neighboring countries led by Saudi Arabia, leading to rally in the stock market. Improving earnings and increase in foreign-ownership limits for a number of blue chip Qatari companies added to the strength. As such, the only dedicated ETF to the country — iShares MSCI Qatar ETF (QAT - Free Report) — gained more than 21% this year. This ETF offers exposure to a broad range of 26 companies in Qatar, charging investors 62 bps in annual fees. It has accumulated $55.3 million in its asset base and trades in average daily volume of 23,000 shares (read: Qatar ETF Hits New 52-Week High).

Worst Zones

Metals & Mining


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 the worst performing ETF of 2018, plunging more than 50%. The slump came on the back of lingering U.S.-China trade and tariff woes that has led to a cut in consumption of rare earth metals and minerals. The ETF follows the MVIS Global Rare Earth/Strategic Metals Index, charging investors 61 bps in annual fees. With AUM of $93.2 million, the fund holds 20 stocks in its basket with each security accounting for less than 7.4% of the assets. It trades in good volume of 65,000 shares a day on average.

Energy

The energy is the worst performing sector this year as oil price plunged in the wake of concerns over weakening global economic demand and burgeoning supply glut. While most of the energy ETFs have seen terrible trading, SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) tumbled more than 48%. With AUM of $181.6 million, this fund tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry. It holds 40 securities in its basket and charges 35 bps in annual fees. The fund trades in a solid average daily volume of 1.5 million shares and has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Market on Track for Worst December: 5 ETFs Losers).

Turkey

The Turkish stocks were in free-fall territory following the depreciation of the currency lira on rising concerns over President Recep Tayyip Erdogan’s executive powers. Further, the stocks were hit hard due to emerging market woes and intensifying tensions between the United States and China. As a result, iShares MSCI Turkey ETF (TUR - Free Report) shed 40.6% in 2018. It tracks the MSCI Turkey Investable Market Index and holds 53 stocks with none accounting for more than 9.3% of assets. The product has AUM of $511.4 million and charges 62 bps in fees per year from investors. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook (read: Are Argentina and Turkey ETFs Good Contrarian Bets for 2019?).

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