Our Take on This Year's Hottest-Performing ETFs
Tread wisely with these specialized exchange-traded funds.
Tread wisely with these specialized exchange-traded funds.
90-degrees and humid. Welcome to Chicago in mid-August.
Perhaps it's heat on the brain that has us straining for metaphors, but with the dog days of summer upon us, we thought we'd run through a short list of some of this year's hottest-performing ETFs.
Overall, this has been a great year for ETFs targeting heavy manufacturing, metals, as well as emerging-markets stocks. On the flipside, internet- and homebuilder-related ETFs have gotten crushed and woe to investors who have bet against the price of crude oil or the Nasdaq 100 Index (Claymore Macroshares Oil Down and Ultrashort QQQ ProShares (QID), respectively).
Here's our take on the five ETFs that posted the best returns through Aug. 8, 2007.
Market Vectors Steel
Year-to-Date Return: 39%
Market Vectors Steel (SLX), which tracks the Amex Steel Index, has been on a tear. As its name would suggest, the portfolio is laden with the stocks of steel producers and the miners that supply them, 33 in all. What's most notable, however, is the fund's global complexion: Foreign players soak up roughly two thirds of the fund's assets. That's been a boon of late with names like Rio Tinto (29% year-to-date return), Companhia Vale Do Rio Doce (RIO) (66%), Arcelor Mittal (MT) (54%), Posco (PKX) (74%), and Gerdau (GGB) (64%), which collectively account for more than half of the fund's assets, propelling returns.
IShares MSCI Brazil
Year-to-Date Return: 37%
IShares MSCI Brazil (EWZ), which tracks the MSCI Brazil Index, has benefited from a few factors. First, the Brazilian Real, in which most of the fund's holdings are denominated, has strengthened smartly versus the dollar in 2007. That currency tailwind accounts for roughly one third of the fund's year-to-date performance. In addition, like the Market Vectors fund, this offering is dominated by a few large holdings: Iron ore miner Companhia Vale Do Rio Doce (CVRD), integrated oil concern Petrobras (PBR), and Brazilian bank Banco Bradesco (BBD), which account for roughly half of the fund's assets alone, have all risen sharply.
PowerShares Wilderhill Clean Energy (PBW) differs from the two previous offerings in a key respect: The portfolio isn't bunched in a few holdings, as its 42-stock portfolio is spread more or less evenly, with the typical name accounting for 2% or 3% of assets. The fund tracks the Wilderhill Clean Energy Index, which is a "selection of companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy." What kinds of companies are we talking about? In many cases, upstart technology and electrical equipment firms. For instance, the fund's top holding, Color Kinetics , manufactures LED lighting systems--not that the links to clean energy are always clear-cut. To wit, semiconductor equipment giant Applied Materials (AMAT) garners a slot in the portfolio, presumably for its role in advancing other energy-friendly technologies. The formula has worked this year, with top holdings Color Kinetics, Echelon , and Trina Solar surging 59%, 275%, and 228%, respectively.
IShares MSCI South Korea
Year-to-Date Return: 31%
In certain respects, iShares MSCI South Korea (EWY) bears a strong resemblance to its sibling, iShares MSCI Brazil. Like that fund (and most country-specific offerings, for that matter), this ETF skews toward its top holdings, with the top 10 names accounting for roughly half of assets. Consequently, as stocks like Samsung Electronics (15% of assets), Posco (8%), and Kookmin Bank (KB) (6%) go, so goes this ETF. This year, at least, that dynamic has worked out quite well, with Posco and Shinhan Financial (SHG) logging nice returns. In addition, the fund has enjoyed a modest kick from a weakening dollar versus the South Korean won.
PowerShares Dynamic Oil & Gas Services
Year-to-Date Return: 28%
Unlike the other ETFs on the list, which are purely passive, PowerShares Dynamic Oil & Gas Services (PXJ) is quasiactive. It tracks a benchmark dubbed the "Oil & Gas Services Intellidex," which ranks U.S. oil and gas services stocks based on various growth, valuation, momentum, and risk factors. For all intents and purposes, however, the primary driver of absolute returns is the fund's narrow subsector focus. And, my, what a wonderful year it has been for oil and gas services stocks. Of this fund's 30 stocks, all but five have posted double-digit gains and nearly two of three have risen 20% or more.
Disclosure: Morningstar licenses its indexes to certain ETF providers, including Barclays Global Investors (BGI) and First Trust, for use in exchange-traded funds. These ETFs are not sponsored, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs that are based on Morningstar indexes.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals
and individual investors. These products and services are usually sold through
license agreements or subscriptions. Our investment management business generates
asset-based fees, which are calculated as a percentage of assets under management.
We also sell both admissions and sponsorship packages for our investment conferences
and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.