If you guessed at the start of the year—before war, inflation and rate hikes—which funds would turn in the best annual performance, maybe you would have said broad stock indexes, real estate or bonds.
You would have been wrong.
The top-performing ETF of 2022, once you filter out leveraged and inverse products, was the $424.2 million iShares MSCI Turkey ETF (TUR) with a monster return of 104% through Dec. 27.
Turkey’s lira plummeted during the year while inflation soared as high as 80%. However, that was what drove the stock market’s outstanding performance, as domestic investors plowed in assets to hedge against skyrocketing prices.
Despite its outsized returns, U.S. investors aren’t taking the bait, and the fund has seen $82.8 million in outflows year-to-date. Indeed, a recent Bloomberg article notes that foreign ownership of Turkish stocks hit record lows.
The runner up to TUR is the $375.9 million Simplify Interest Rate Hedge ETF (PFIX), which rolled out in May 2021. The fund is designed to provide a hedge against sharp increases in interest rates, which it does by holding U.S. Treasury securities and U.S. Treasury Inflation Protected Securities in conjunction with interest rate options. PFIX is up 93% this year, and unlike TUR, it has seen inflows to the tune of $123.3 million.
Energy All the Way Down
From PFIX on down, the top performers are energy related with one exception. The $2.6 billion VanEck Oil Services ETF (OIH) was in the No. 3 spot with a gain of 66%, followed by the $40.7 billion Energy Select Sector SPDR Fund (XLE) with a return of 65%.
Ultimately the remaining energy funds in the top 20 ETFs in terms of returns were up anywhere from 49% (the Invesco DWA Energy Momentum ETF (PXI)) to 65% (the iShares U.S. Oil Equipment & Services ETF (IEZ)). Almost all of those were equity funds; however, the United States 12-Month Natural Gas Fund LP (UNL) was in the mix with a return of 57%. The fund invests in natural gas futures via a laddered strategy that maintains equal-weight exposure to the 12 nearest-month NYMEX natural gas futures.
According to data from the Bureau of Labor Statistics, energy costs for Americans saw an average increase of 13% year-over-year as of November.
Nickel Another Outlier
Nestled in the No. 19 spot for returns is the $43.7 million iPath Series B Bloomberg Nickel Subindex Total Return ETN (JJN) with a return of 50%. The ETN, which tracks the price of nickel futures, saw a sharp spike back in early March before falling almost as dramatically, but it climbed fairly steadily during the final quarter. Demand for nickel has seen an increase largely due to its use in batteries for electric vehicles, and that demand is expected to continue to grow over the next few years.
Source: FactSet, data as of Dec. 27, 2022
Contact Heather Bell at [email protected]