With two months in the books, the outlook for financial markets in 2016 is no clearer than it was at the start of the year. The one-two punch of the oil crash and China's slowdown continues to weigh on risk assets, while buoying safe havens.
The SPDR S&P 500 (SPY | A-98) was down about 5.1% through Feb. 29 even after a muscular rally in the second half of that month. With a return like that, it's unsurprising that SPY isn't even close to the top of the pack for ETF returns so far this year.
Meanwhile, the iShares Core U.S. Aggregate Bond ETF (AGG | A-98)―which holds a basket of safe, high-quality bonds―gained 2.1% in the period.
While respectable, AGG's return also isn't enough to propel it into the top 10 nonleveraged/noninverse ETF returns for the year so far. In fact, it takes a minimum 25% return to make this list, and that's only half the return of 2016's top-performing ETF.
Gold Miners Dominate
Typically, the top10 ETF list features an eclectic mix of funds from various asset classes and sectors.
Not this time.
Each of the top performers this year is a gold or silver miners exchange-traded fund. Up until mid-January, the mining sector was one of the most-beaten-down areas of the market. But following a surprising and sharp 17% rally in the price of gold so far this year, the sector surged.
The iShares MSCI Global Gold Miners ETF (RING | B-99) took the top spot, with a 50.7% return. RING provides broad-based exposure to gold miners from around the world, and has the cheapest expense ratio in the segment—0.39%.
At the No. 2 position is the largest and most liquid of all miner ETFs, the Market Vectors Gold Miners ETF (GDX | C-80), which climbed 41.3% through Feb. 29. Many of the top holdings in GDX are the same as for RING, but the Market Vectors fund limits itself to firms traded in the U.S.
For a complete list of the gold and silver miner ETFs that made the list, see the table at the bottom of this article.
VIX & High-Duration Bonds Outperform
Outside of gold miners, there aren't many ETFs that have seen impressive gains this year. The VIX exchange-traded notes such as the VelocityShares VIX Short-Term ETN (VIIX | B-53) and the iPath S&P 500 VIX Short-Term Futures ETN (VXX | B-47) came the closest to edging into the top 10, with gains of just under 24%.
Given this year's volatile market and the rise in the CBOE Volatility Index, the strong returns in these products make sense.
Another pair of ETFs to do well so far in 2016 are zero-coupon, high-duration bond funds. These include the PIMCO 25+ Year Zero Coupon U.S Treasury ETF (ZROZ | C-57) and the Vanguard Extended Duration Treasury ETF (EDV | C-50), up 13.6% and 12.8%, respectively, for the year so far.
ZROZ and EDV hold the longest maturity bonds with no coupon payments, making these two funds extremely interest-rate sensitive. Thanks to this year's unexpected decline in U.S. interest rates, they've been big strong performers.
Up until now, we've only mentioned nonleveraged/noninverse ETFs, but of course, there are dozens of exchange-traded products that do offer leverage and inverse exposure. These are typically designed for aggressive traders with short holding periods.
If timed right, the returns on these ETPs can be stellar. Since the start of the year, the top 10 products in this category include leveraged gold miner ETPs, inverse biotechnology ETPs and inverse natural gas ETPs.
The Direxion Daily S&P Biotech Bear 3X Shares ETF (LABD) led all gainers, with a 143.2% return. That was followed closely by the Direxion Daily Gold Miners Bull 3X ETF (NUGT), with a 139% gain, and the VelocityShares 3X Inverse Natural Gas ETN (DGAZ), with a 130.8% advance.
For a complete list of top-performing leveraged and inverse ETFs, see the table at the bottom of this article.
Top 10 ETPs (excluding leveraged/inverse)
|Ticker||Fund||YTD Return (%)|
|RING||iShares MSCI Global Gold Miners||50.73|
|GDX||Market Vectors Gold Miners||41.25|
|PSAU||PowerShares Global Gold and Precious Metals||41.28|
|SGDJ||Sprott Junior Gold Miners||40.57|
|SGDM||Sprott Gold Miners||36.37|
|GDXJ||Market Vectors Junior Gold Miners||35.19|
|SILJ||PureFunds ISE Junior Silver (Small Cap Miners/Explorers)||33.73|
|SLVP||iShares MSCI Global Silver Miners||31.14|
|GLDX||Global X Gold Explorers||32.38|
|SIL||Global X Silver Miners||25.77|
Top 10 Leveraged/Inverse ETPs
|Ticker||Fund||YTD Return (%)|
|LABD||Direxion Daily S&P Biotech Bear 3X Shares||143.23|
|NUGT||Direxion Daily Gold Miners Bull 3X||139.04|
|DGAZ||VelocityShares 3X Inverse Natural Gas ETN||130.83|
|JNUG||Direxion Daily Junior Gold Miners Bull 3X||109.98|
|ZBIO||ProShares UltraPro Short Nasdaq Biotechnology||102.63|
|GDXX||ProShares Ultra Gold Miners||90.41|
|KOLD||ProShares UltraShort Bloomberg Natural Gas||75.48|
|BIS||ProShares UltraShort Nasdaq Biotech||64.68|
|GDJJ||ProShares Ultra Junior Miners||73.29|
|UGLD||VelocityShares 3X Long Gold ETN||56.72|
Data through Feb. 29, 2016
Contact Sumit Roy at [email protected].