It's been a good year for financial markets so far in 2016. After a bumpy start to the year, most major asset classes are up through the end of May, including stocks, bonds and commodities.
Even international stocks are hanging in there, with a slight gain for the year. As of this writing, the Vanguard Total International Stock ETF (VXUS | A-97) was up by 1.1% year-to-date.
U.S. stocks are doing a bit better―the SPDR S&P 500 ETF (SPY | A-97) is up 3.5%. That's essentially the same return that bonds have given investors this year; the iShares Core U.S. Aggregate Bond ETF (AGG | A-98) gained 3.3% on the year.
Meanwhile, leading all asset classes are commodities. The iShares S&P GSCI Commodity Indexed Trust (GSG | C-91) rallied 8.4% through the first five months of the year.
YTD Returns For VXUS, SPY, AGG, GSG
Miners Dominate Top Performers List
The strong gains in commodities are thanks to a surprising rebound in the price of oil and gold. The United States Brent Oil Fund (BNO), for example, is up a cool 22.9% year-to-date, while the SPDR Gold Trust (GLD | A-100) is up about 14.4%.
But as impressive as the gains in those ETFs are, they aren't even close to the top of the heap. The top 10 nonleveraged/noninverse exchange-traded funds of the year all belong to a single group: gold and silver miners.
Miner ETFs, which had been beaten down for years amid falling gold prices and other industry-related woes, finally had things working in their favor when gold unexpectedly surged at the start of 2016.
Though concerns about mismanagement and high costs remain, for now, investors are looking past all that and seeing the industry as a leveraged bet on higher gold prices. With gold trending up, that's a bet that's paying off.
Returns Of 64% Or More
The threshold to be among the top-performing ETFs is high. Each of the top 10 has gains ranging from 64% to 131%, with the PureFunds ISE Junior Silver ETF (SILJ | F-64) at the top of the pack.
SILJ is a unique fund in that it targets small silver miners, a risky strategy that's worked well this year.
Another two silver miner ETFs, the iShares MSCI Global Silver Miners ETF (SLVP | B-99) and the Global X Silver Miners ETF (SIL | C-84), also made the list, with returns of close to 80%. That was enough to put them at the Nos. 3 and 4 spots, respectively.
SLVP and SIL hold a much broader basket of silver mining stocks than the small- and micro-cap-focused SILJ.
Gold Miners Round Out Top 10
Aside from the trio of silver miner ETFs, the rest of the top 10 are all focused on gold miners. That includes the Global X Gold Explorers ETF (GLDX | D-42), which jumped 87.4%, putting it at No. 2 on the list.
GLDX focuses on gold explorers, which are typically small firms involved in the earliest stages of the business.
The lowest-cost fund in the gold miner ETF segment also made the list, at No. 6: the iShares MSCI Global Gold Miners ETF (RING | B-99), up 75.9%. So too did the largest and most liquid gold miner fund, the VanEck Vectors Gold Miners ETF (GDX | C-75), at No. 8, with a 64.6% return.
Top 10 ETFs Through May 31, 2016
|Ticker||Fund Name||YTD Return (%)|
|SILJ||PureFunds ISE Junior Silver (Small Cap Miners/Explorers) ETF||130.97|
|GLDX||Global X Gold Explorers ETF||87.40|
|SLVP||iShares MSCI Global Silver Miners ETF||82.74|
|SIL||Global X Silver Miners ETF||79.25|
|GDXJ||VanEck Vectors Junior Gold Miners ETF||75.95|
|RING||iShares MSCI Global Gold Miners ETF||75.91|
|SGDJ||Sprott Junior Gold Miners ETF||71.24|
|GDX||VanEck Vectors Gold Miners ETF||64.58|
|PSAU||PowerShares Global Gold & Precious Metals Portfolio||64.26|
|SGDM||Sprott Gold Miners ETF||64.02|
Broken ETN Biggest Loser
In contrast to the homogenous list of ETFs that are the best performers in 2016, the worst-performers list features a much more eclectic mix of funds.
The worst among them is the iPath Bloomberg Natural Gas Subindex Total Return ETN (GAZ | F-65), with a loss of 45.8% year-to-date.
GAZ is a prime example of a broken product. Back in 2009, the issuer—Barclays—suspended issuances of the exchange-traded note, throwing a wrench into the process that normally keeps ETNs close to their net asset value.
In turn, GAZ would go on to often trade at sizable premiums to its NAV, with no rhyme or reason to its fluctuations. The ETN still holds some correlation to natural gas prices―which are down this year―but it's a product most investors should stay away from.
For comparison, the United States Natural Gas Fund (UNG | B-94)―which also tracks natural gas but continues to function normally―is down only 20.5% this year.
Roller-coaster Ride For VIX ETFs
At No. 3 on the bottom performers list is the iPath Global Carbon ETN (GRN | F)—a tiny ETN that tracks the carbon market—with a 33.3% loss.
Also on the list are four volatility products―including the largest and most liquid, the iPath S&P 500 VIX Short-Term Futures ETN (VXX | B-47)―with losses of up to 34% for 2016 so far.
Volatility spiked dramatically earlier this year as the stock market plunged, but it's since come back down. At one point in February, the VIX traded north of 30, and VIX products were up nearly 50% on the year. Today, the VIX is at less than half those levels at 14.
Solar, Biotech & Japan Fare Poorly
Rounding out the bottom 10 are two solar ETFs, a biotech ETF and a Japan ETF.
Analysts point to the stunning collapse of SunEdison as hurting sentiment in the solar industry. The company had a market cap of as much as $10 billion last year before its rapid descent began; last month, SunEdison filed for bankruptcy.
Cheap prices for fossil fuels used in electricity generation such as natural gas and coal―which are seen as competition for solar―may also be weighing on solar ETFs.
Meanwhile, biotech ETFs such as the BioShares Biotechnology Clinical Trials Fund (BBC), which is down 27.9% this year, have been battered amid concerns that a new U.S. president may be bad for the industry. Presidential candidates Hillary Clinton and Donald Trump have both complained about the high cost of drugs, and may make moves to increase regulations on biotech firms if they are elected.
Finally, Japan has been one of the worst-performing stock markets of the year, which helps explain the lousy performance of the WisdomTree Japan Hedged Financials Fund (DXJF | D-64), down 23.1% on the year.
Frustration that years of "Abenomics" and unprecedented monetary stimulus haven't given the country's economy the boost that was expected is partially why investors have been selling Japanese stocks.
Negative interest rates in particular are seen as hurting Japanese financial firms, while the strength in the yen (which hurts Japanese exporters) is another reason for the underperformance in Japanese equities more broadly.
Bottom 10 ETFs Through May 31, 2016
|Ticker||Fund Name||YTD Return (%)|
|GAZ||iPath Bloomberg Natural Gas Subindex Total Return ETN||-45.82|
|VXUP||AccuShares Spot CBOE VIX Up Shares||-34.08|
|GRN||iPath Global Carbon ETN||-33.30|
|VIXY||ProShares VIX Short-Term Futures ETF||-32.63|
|VXX||iPath S&P 500 VIX Short-Term Futures ETN||-32.49|
|VIIX||VelocityShares Daily Long VIX Short-Term ETN||-32.31|
|TAN||Guggenheim Solar ETF||-28.17|
|BBC||BioShares Biotechnology Clinical Trials Fund||-27.92|
|KWT||VanEck Vectors Solar Energy ETF||-25.07|
|DXJF||WisdomTree Japan Hedged Financials Fund||-23.07|
Contact Sumit Roy at [email protected].