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Top Performing ETFs of the First Quarter

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The last couple of years did not go well for the global markets. Besides economic troubles in Europe, sequestration and the fiscal cliff in the U.S. had caused temporary disruptions to the Wall Street rally.

Despite these issues, markets haven’t really looked back since the start of this year. It appears that as long as the Fed continues with its massive asset purchases, none of the global upheavals can stop the Wall Street advance.

Market Trends in Q1

The first quarter of the year proved to be a strong comeback for the U.S. equity market.   While a fresh wave of European worries once again threatened the market, strong housing data and the Federal Reserve’s announcement to continue its monthly purchases of $45 billion in Treasury bonds and $40 billion in mortgage-backed securities, yet again pushing investors into riskier assets (Homebuilders ETFs Continue to Rally).

In fact, the market saw a big increase in jobs for February. The economy created 236,000 more jobs in February.

This came in better than the expected increase of 160,000 new jobs. The unemployment rate dropped to 7.7% in February from 7.9% in January, marking the lowest drop since December 2008.

Supporting this strong data, the Dow Jones Industrial Average, as represented by (DIA - Free Report) , recorded the longest winning streak in March since 1960.

Euro-zone worries reemerged after E.U. leaders announced they would impose bank levies on Cypriot deposits. The news not only brought a halt to Wall Street gains but impacted the equity market globally as well.

But like any other European news, the impact of this news on the market did not last long and the Wall Street again headed for an upside. In fact, DIA recorded a solid gain of 11.9% for the quarter while SPDR S&P 500 (SPY - Free Report) ended the first quarter of the year with a gain of 10.5%.

Big Winners

Among the ETFs that recorded strong gains or losses in the first quarter of the year, we highlight some of the ETFs that turned out to be the top performers in the quarter below (3 ETFs Beating the S&P 500).

Among the top performers, Indonesia ETFs put up a remarkable show in the first quarter. The Market Vectors Indonesia Small-Cap ETF recorded an impressive year-to-date gain of 31.2%. After a dismal performance in 2012, the recovery in the New Year has been striking.

As the name suggests, the recently launched IDXJ offers a targeted exposure to the small-cap segment of the Indonesian market thereby providing a better opportunity to tap domestic growth.

IDXJ manages an asset base of $8.5 million and provides exposure to 27 small-cap securities of Indonesia. The fund charges an expense ratio of 61 basis points annually.

The ETF appears to be concentrated in the top ten holdings as it allocates a hefty 58.02% of the asset base to them. Among sector allocations, Financials dominates the list with a 42.3% share while Industrials and Consumer Staples get the next two positions sharing 27.3% and 13% of the asset base, respectively.

The Indonesian economy, the biggest in Southeast Asia, appears to be poised for good growth in 2013 attributable to healthy domestic consumption, a good investment climate and more infrastructure development. Low inflation and interest rates should also support economic growth (Indonesia ETFs Leading the Pack in 2013).

The biggest drag on the economy in 2012 was declining exports to weaker developed markets. However, in 2013, the growth of the economy is expected to be supported by both strong domestic consumption and some recovery in export demand. Political uncertainty related to elections still remains a matter of concern though, suggesting big cap plays like (IDX - Free Report) or (EIDO - Free Report) could be more stable choices in Q2.

Another ETF which turned out to be the best performing ETF in the quarter is SPDR S&P Transportation ETF (XTN - Free Report) . In the year-to-date period XTN has produced a remarkable return of 21.9%.

Transportation ETFs represent a good investment opportunity during an upswing in the markets. This is why they are often considered to be a barometer of the broad market as it indicates that more goods are being moved around, and business activity is gaining strength.

While 2012 was a year of slow growth for the U.S. economy, broad stock markets have risen to a remarkable level this year. Additionally, positive trends in the economy suggest that there is rising demand for the movement of goods across many economic sectors. This has resulted in the transport sector reaching the present level (Transport ETFs: Can the Surge Continue?).

XTN holds roughly 39 securities in its basket charging investors just 35 basis points in fees. The fund manages an asset base of $39.1 million.

This fund is also heavily exposed to trucking and airlines as they make up roughly 60% of the total. Beyond this, close to 35% of the total goes to both air freight & logistics, and railroad companies, which pretty much round out the entire fund except for a 4% allocation to marine firms (read Two Sector ETFs Posting Incredible Gains).

In terms of individual holdings, US Airways Group, Alaska Air Group Inc, and Hunt J B Transportation Services Inc occupy the top three positions in the fund with a share of 3.70%, 3.61%, and 3.57%, respectively.

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