It’s been a tough year for investors. A cocktail of concerns, from politics to trade to inflation to interest rates, has led to high volatility and lackluster returns so far in 2018.
The SPDR S&P 500 ETF Trust (SPY) is down 0.2%, while the iShares Core U.S. Aggregate Bond ETF (AGG) is down 1.5% in the year-to-date period through April 10—performance that feels even worse after last year’s robust gains of 21.7% and 3.6%, respectively.
Amid this challenging environment, a lot of equity analysts are calling this a “stock picker’s market.” Not all stocks are doing poorly, and if you pick the right ones, now is the ideal time to outperform the lackluster indices, they argue.
The same goes for ETFs. There are plenty of them that are outperforming SPY and AGG. Pick the right ones and you could potentially be up by double digits for the year. Call it an “ETF picker’s market.”
Here we highlight some of the stellar performers in the ETF space, with the usual caveat that past performance is no guarantee of future results. Just as picking individual stocks is fraught with risks, so too is picking individual ETFs that may be much more concentrated and volatile than SPY or AGG.
Volatility ETFs Nearly Double
Just as we usually do in this article, we’ve broken down performance into two separate lists. The first comes from the universe of all U.S.-listed ETFs; the second excludes leveraged, inverse and volatility ETFs.
The first, broader list has a range of returns from 19% to nearly 100%. Half the ETPs on the list, or 10, are linked to volatility, including the REX VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX), up 98.3%, and the iPath S&P 500 VIX Short-Term Futures ETN (VXX), up 74.1%.
No one should be surprised by these returns. The Cboe Volatility Index (VIX) rocketed higher this year as the U.S. stock market witnessed its steepest decline in two years. In the last several weeks, the S&P 500 fell into correction territory, losing as much as 12% from its January all-time highs.
Scrambling to hedge their positions against further losses, investors bid up the prices of options, leading to the surge in the VIX, a gauge that measures the implied volatility of near-term S&P 500 index options. A blowup in two popular ETNs that short the VIX added more fuel to the rally in the gauge.
The VIX last stood around 21, down from February’s high of 50, but close to double 2017’s average level.
Top-Performing ETFs Of 2018 (all-encompassing)
Note: Data measures the total return for the year-to-date period through April 10.
Aside from the 10 VIX products, many of the other ETPs to outperform this year are related to commodities. The iPath Bloomberg Cocoa Subindex Total Return ETN (NIB) and the iPath Pure Beta Cocoa ETN (CHOC) lead the commodity pack, with gains of around 33% each. Cocoa prices fell to a 10-year low last year, so a bit of a rebound was in store.
Meanwhile, the VanEck Vectors Egypt Index ETF (EGPT) is another standout performer, with a 21% return. Emerging markets in general have outperformed, but EGPT in particular got a shot in the arm following the reelection of reform-minded president Abdel-Fattah El-Sisi.