Financial markets just went through one of their most tumultuous periods in history during the first quarter. U.S. stocks lost a fifth of their value, while oil futures shed a whopping two-thirds of their value during the period.
The carnage in markets was widespread, but it wasn’t all-encompassing; there were a few assets that managed to rally during the chaos—some quite substantially.
Traditional safe havens—like Treasuries and gold—were among them, and naturally, ETFs tied to those areas performed well. In this article, we’ll run through those funds and others that are among the best-performing U.S.-listed ETFs of the year.
Record VIX Lifts Volatility Products
Excluding leveraged and inverse products, the best-performing ETFs of the year are all tied to the Cboe Volatility Index (VIX). The VIX made a record-closing high during March, and is still trading at historically elevated levels.
That’s fueled year-to-date gains of around 213% for VIX futures-tracking ETFs like the VelocityShares Daily Long VIX Short-Term ETN (VIIX), the ProShares VIX Short-Term Futures ETF (VIXY) and the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX).
VIX ETPs can make big, sudden moves, but they typically aren’t recommended as buy-and-hold instruments. Rather, they are used for short-term trading and hedging purposes.
Best-Performing ETFs Of The Year (ex. leveraged/inverse products)
Data measures total returns for the year-to-date period through April 2, 2020
Long-Duration Treasury ETFs Surge
Outside of VIX products, long-duration Treasury funds have been far and away the best-performing ETFs of the year.
The PIMCO 25+ Year Zero Coupon US Treasury Index ETF (ZROZ) and the Vanguard Extended Duration Treasury ETF (EDV), which holds zero-coupon Treasuries with maturities of 20 or more years, each returned more than 32% so far this year.
As they offer no coupons and hold Treasuries with the longest maturities, ZROZ and EDV have the greatest interest rate sensitivity. That’s worked extremely well for them in an environment in which yields have plummeted to record lows.
Meanwhile, the iShares 20+ Year Treasury Bond ETF (TLT), the Schwab Long-Term U.S. Treasury ETF (SCHQ) and the SPDR Portfolio Long Term Treasury ETF (SPTL) hold Treasuries that do offer coupons, so their interest rate sensitivity is a bit less, but still on the high side. Each fund is up more than 24% year to date.
Alternative Strategies Shining
Certain alternative strategies have also done well in so far 2020. The Cambria Tail Risk ETF (TAIL) was created specifically for this type of “black swan” environment. TAIL holds the majority of its portfolio in intermediate-term Treasuries, but about 1% of its assets it directed toward out-of-the-money put options on the S&P 500. Those put options have risen dramatically in value so far this year as the S&P 500 has tumbled. TAIL was last trading up by just under 30% on the year.
Meanwhile, the AGFiQ U.S. Market Neutral Momentum Fund (MOM) uses a hedge-fundlike strategy that has paid off nicely so far this year. MOM, which has returned 24.6% year to date, goes long high-momentum stocks, while simultaneously shorting low-momentum stocks.
This is a strategy that—contrary to what many believed might happen—is paying off in a down market. High-momentum sectors like technology have outperformed low-momentum sectors like energy throughout the market sell-off.
Interestingly, another ETF from the same issuer, the AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL), is also outperforming using a different long/short strategy. BTAL goes long low-beta stocks, while shorting high-beta stocks. Beta measures a stock’s volatility in relation to the overall market—higher-beta stocks are more volatile; lower-beta stocks are less volatile.
BTAL’s strategy has worked well, delivering a 16.9% return so far this year as low-beta stocks outperform their high-beta counterparts.
Rounding out the list of best-performing ETFs are two very different funds, the Aberdeen Standard Physical Palladium Shares ETF (PALL) and the ProShares Long Online/Short Stores ETF (CLIX).
CLIX has been one of the prime beneficiaries of the current economic environment, where brick-and-mortar stores have largely had to shut down, while online stores remain open and are thriving. While physical stores will undoubtedly open back up, the trends that benefit CLIX aren’t going away.
Finally, PALL edged out gold ETFs to become the top-performing commodity ETF of the year. Palladium prices hit record highs in February before retreating amid the broader market swoon. Prices have been supported by tight supplies and strong demand for the metal that is used as a catalytic converter in automobiles.