ETFs focused on Chinese equities, particularly those investing in mainland stocks, delivered the biggest returns in the first half of the year. The strong performance was largely tied to a reform-minded government that has shown itself committed to do whatever it takes to grow and open up the stock market.
This pro-reform leadership has "walked the walk" and "talked the talk," as Brendan Ahern, head of KraneShares, recently put it, implementing change that includes having state-owned enterprises be more efficient; allowing private investors in; spinning off noncore businesses, etc.
Top Gainers Have Been Falling
The Market Vectors ChinaAMC SME-ChiNext ETF (CNXT | D-49) and the Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF (ASHS | D-73) each gained upward of 61 percent in the last six months. These gains at the end of June even reflect a 20-percent-plus technical correction Chinese stocks faced in the second half of the month—at one point CNXT was up more than 100 percent this year.
2015 Half-Year Top Performers (%) ex-Leveraged & Inverse
|CNXT||Market Vectors ChinaAMC SME-ChiNext||64.73||16.23||50.81|
|ASHS||Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF||61.12||31.58||75.56|
|SBIO||ALPS Medical Breakthroughs ETF||43.04||105.99||122.42|
|XBI||SPDR S&P Biotech||35.66||653.21||2,712.63|
|BBP||BioShares Biotechnology Products||34.34||16.29||21.03|
|BBC||BioShares Biotechnology Clinical Trials||30.57||25.27||30.78|
|ECNS||iShares MSCI China Small-Cap||29.29||9.39||49.51|
|RODI||Barclays Return on Disability ETNs||26.16||-||27.61|
|KBA||KraneShares Bosera MSCI China A Share||25.99||0.20||29.58|
|PEK||Market Vectors ChinaAMC A-Share||25.27||15.32||133.59|
CNXT targets 100 of the largest stocks listed on Shenzhen's SME and ChiNext Boards, which cater to smaller- and medium-size companies. ASHS tracks an index of 500 Chinese small-cap companies listed on the Shanghai and Shenzhen stock exchanges.
"Beijing is pursuing sweeping economic reforms with the intent of establishing a greater role for market forces and less direct management of the economy by organs of the state," Tyler Mordy, of Hahn Investment Stewards, recently told us. "To smooth the process, a stock market boom is crucial—both to enable the further privatization of state-owned enterprises and to encourage private investment."
"The golden rule of China investing is to monitor what the central government wants. And what it wants now is a healthier market with greater liquidity and depth," he added.
Biotech Posts Healthy Returns
Also among the best-performing ETFs in the first half of the year was a roster of biotech-focused ETFs. The biggest of them, the $2.4 billion SPDR S&P Biotech (XBI | A-77), saw returns of 35 percent in six months.
These funds—tapping into one of the hottest health care segments—have benefited from several factors including the Affordable Care Act, the so-called Obamacare legislation. The legislation has created an influx of new patients that health care companies have seen come into the fold. Adding to performance has been a wave of mergers and acquisitions, and ever-pressing demand for new drug development in the face of global scares such as Ebola.
Health care, as a sector, was one of only three S&P 500 sectors to rally in the first half of the year, and the best-performing at that, with gains of 8.8 percent. In all, the S&P 500 ended June with gains of only 20 basis points in 2015.