ETF Hits & Misses In 2015

December 09, 2015

3 Sectors That Missed

Several sectors underperformed this year as a result of specific economic conditions, which are likely to persist into 2016.

Natural Gas ETFs

This area was down 45-70% this year on strong production in the shale fields, which drove inventory to five-year highs. Demand for natural gas will remain low amid a forecasted mild winter for the U.S. Natural gas should continue to be avoided, as supply and demand concerns will not be resolved anytime soon.

The United States Natural Gas (UNG) is the futures-based ETF, while the First Trust ISE-Revere Natural Gas (FCG) is an equity-based fund.


Nickel Prices

This area was down 40-50% in 2015 to its lowest levels in 12 years, hurting ETFs based on this commodity’s prices. Nickel’s primary use is in making stainless steel. Demand for this material isn’t likely to rise anytime soon, because of slowed economic growth. Strong nickel production will continue to put pressure on prices in 2016.

The iPath Bloomberg Nickel Subindex Total Return ETN (JJN) has reflected the metal’s poor performance.

Brazilian ETFs

This area also made the list of the year’s worst performers. The country’s recession is deepening due to a strong reliance on commodity prices. Also, the Brazilian real was down 60% this year at its lows, due to political instability and credit downgrades. However, the real has rebounded 10% in recent months, which provides a bit of hope for investors. If the Brazilian government takes positive political action to attract capital and commodity prices stabilize, Brazilian stocks will become attractive into next year.

The iShares MSCI Brazil Capped (EWZ) tracks a market-cap-weighted index of Brazilian firms covering the entire market-cap spectrum. The Market Vectors Brazil Small-Cap (BRF) tracks a market-cap-weighted index of Brazilian small-cap firms.

ETFs remain a solid option for investors looking to own low-cost assets exposed to different areas of the global market. There will be a continuation of strong asset growth in these funds in 2016 and beyond.

While taking advantage of their positive attributes, advisors are wise to keep a finger on the pulse of the global economy next year, particularly as geopolitical unrest and the U.S. presidential election impact ETF results.

Chuck Self, MBA, CFA, is chief investment officer and chief operating officer at iSectors, an outsourced investment manager that provides advisors access to their proprietary asset allocation models based on low-cost index ETFs designed with various risk tolerances. He has more than 30 years of experience in the investment management industry. At the time of this writing, neither the author nor the firm held any positions in the securities mentioned.

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