Top ETF Surprises So Far This Year

Junior miners, volatility and SPY outflows move the surprise meter.

Back at the beginning of the year, Matt and I made our “picks” for the year. We did so with the enormous caveat that we’re at heart long-term buy-and-hold investors, and our “picks” were as much conversation starters as convictions. Still, it’s fun to check in once in a while and see how wrong I was.

Junior Precious Metals

I was frankly surprised to see that one of my picks—the Market Vectors Gold Miners ETF (GDX | B-63)—had done as well as it has. It’s up almost 30 percent year-to-date, as the whole gold mining sector has recovered. But I’m not crowing, because boy did I miss the real winner there—the Global X Gold Explorers ETF (GLDX | D-24):

Up more than 45 percent year-to-date, the fund’s just had an incredible ride, holding an equally weighted portfolio of just 20 predominantly North American gold wildcatters, with average market caps of just $300 million each.

It’s an enormously risky, concentrated bet—and you can see that if you tried to hop on board in March, you would have suffered an enormous gut-wrenching drop. But it’s hard to argue with the current numbers.

And GLDX isn’t even the best-performing equity fund of the year—that would go to the PureFunds ISE Junior Silver ETF (SILJ | F-25), a highly illiquid, $10 million collection of 25 tiny silver wildcatters, ranging from the Latin American focused Fortuna Silver to the $45 million Revett Mining, which is pinning its hopes on a new mine in Montana.

To suggest that these are speculative is to underuse the word “speculative,” but when it works, it works:

These aren’t the two best-performing ETFs in the market—there are levered funds that have done better, and anything related to the highly pinched coffee futures market is up 60 percent this year, but for mainstream equity, these two are it.

The Worst Volatility Play

On the other end of the spectrum, I was surprised to see a fund that I genuinely think is interesting doing incredibly poorly: the C-Tracks Citibank Volatility ETN (CVOL | D-49).

It’s down 56 percent so far this year. I’ve written about CVOL before, calling it the best volatility ETN nobody owned. The reasoning is that CVOL leverages up its VIX exposure so that it more cleanly matches the actual movements in VIX over short-term trading windows. But that leveraged exposure to the steep contango in the VIX futures market has just made it a wealth destroyer.

VIX-based products in general have had a bad year. The big fund in the space, the iPath S&P 500 VIX Short-Term Futures ETN (VXX | A-47), is down 26 percent so far. But CVOL is the worst of the bunch.

Bailing Out Of SPY

We track ETF fund flows around here on just about every time period. We’re used to big funds having big swings in assets, so when we see a few billion dollars flow in or out of a fund like the SPDR S&P 500 (SPY | A-98), we generally yawn.

But the flows out of SPY this year have been the real deal. Since Jan. 1, SPY has bled more than $21 billion, or 13 percent of assets.

While it’s easy to say “people are getting out of the market,” that’s not really the case. If you look to the other end of the list—the funds pulling in assets, they all look like core holdings.

In fact, three of these funds—the Vanguard S&P 500 (VOO | A-96), iShares Core S&P 500 (IVV | A-98) and Vanguard Total Stock Market (VTI | A-100)—could all be seen as ideal long-term buy-and-hold alternatives to SPY.

SPY, while cheap and highly liquid, is actually more expensive (at 9 basis points) than either IVV (at 7 bps) or VOO (at 5 bps), and doesn’t suffer from the cash drag problems of SPY’s unit investment trust structure.

No, this doesn’t look like money running away from the market; it looks to me like a changing of the guard, from short-term-focused traders to long-term-focused investors.

And that may be the biggest surprise of all so far this year.

At the time this article was written, the author held no positions in the securities mentioned. Contact Dave Nadig at [email protected].