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 investment manager.
The financial markets performed well in 2016, reaching record highs throughout the year despite U.S. political uncertainty and ongoing geopolitical tensions. The ETF universe also continued to expand, growing to $2.5 trillion in assets as of Oct. 31, 2016, up from $2.1 trillion at the end of 2015.
However, despite attracting assets at a rapid pace, various ETFs vastly outperformed and underperformed others throughout the year. Below, we take a deeper dive into last year’s hits and misses, along with some recommendations for investors.
3 Strong Performers
Small-Cap Precious Metals
Precious metals ETFs, particularly those focused on small miners, more than doubled in share price last year. This remarkable outperformance can be attributed to a flurry of tail winds, including low interest rates, low dividend income and high demand for bullion that outpaced supply. These same factors led to strong returns for those holding reserves of the underlying metal commodity.
For example, gold bullion’s price rose 30% in the first half of 2016, and silver nearly doubled in the same period. Although precious metal prices have dropped since then, the miners have taken the opportunity to hedge their production and reduce costs.
Looking ahead, investors can find opportunity in junior silver producers, which have the most leverage to drive prices higher. Investors can look to the PureFunds ISE Junior Silver ETF (SILJ) for a pure play on silver. Early-stage gold miners also benefited from recent trends, as higher gold prices have given these companies the opportunity to increase exploration spending. The VanEck Vectors Junior Gold Miners ETF (GDXJ) is a good option for interested investors.
