This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by Chuck Self, chief investment officer and chief operating officer at iSectors, an outsourced investment manager
This year has been another strong one for the ETF industry. Their popularity continued to grow among investors and advisors, with more than $2.1 trillion in assets as of Oct. 31, an 11.4% increase over the previous 12 months, according to the Investment Company Institute.
Naturally, there were winners and losers. This year, fund results were largely driven by global economic conditions and commodity supply and demand. Following are 2015’s biggest hits and misses.
3 Strong Performers
ETF results were strong overseas in key economic regions including Russia and Japan. Growth was anchored by Internet-based ETFs with strong near- and long-term growth prospects.
This area saw growth ranging from 18-20% this year. Japanese exporters have been hurt by slowing global economic growth. However, most of the country’s small-cap companies draw revenue from domestic sources, and easing from the Bank of Japan is benefiting these companies.
Top picks in the sector include the WisdomTree Japan SmallCap Dividend Fund (DFJ) and the WisdomTree Japan Hedged SmallCap Equity Fund (DXJS | C-67). Despite 2015 growth, investors should be cautious in the region next year, because any positive economic news is already priced into stocks.
This area is up nearly 25% this year. Internet companies have strong earnings visibility and will benefit from dynamic growth among existing products, platforms and technology, as well as the acceleration of new products and services.
Top picks in the sector are the First Trust DJ Internet Index Fund (FDN), the PowerShares Nasdaq Internet Fund (PNQI) and the KraneShares CSI China Internet ETF (KWEB). Internet ETFs are a good buy well into 2016 due to expected strong near- and long-term growth.
This area is up nearly 20% on the year. The ruble, and oil—which accounts for 40% of the Russian economy—stabilized, and Russian stocks remained inexpensive. Russia continues to show signs of a strengthening relationship with Western countries, which most notably could result in lifted economic sanctions sooner rather than later.
Top picks in this sector include the Market Vector Russia ETF Trust (RSX), the SPDR S&P Russia ETF (RBL) and the iShares MSCI Russia Capped ETF (ERUS). Looking ahead into 2016, supply and demand for oil will become more balanced, making Russian equities a solid investment.