ETF Losers Come Roaring Back In October

October 12, 2015

The bulls are back. After a horrible August and September, risk assets have roared higher in October. The SPDR S&P 500 (SPY | A-99) gained 5.1 percent already this month, slicing its year-to-date loss down to 0.5 percent (including dividends).

It helps that the S&P 500 closed out September very close to its correction lows, making it easy to rally off those levels.

Of course, SPY isn't the only ETF that's been climbing. High-beta exchange-traded funds that were beat down even harder than the S&P 500 have performed tremendously well early in the fourth quarter.

In fact, in most cases, the harder the ETF got hit earlier in the year, the harder it's bounced back in October. Many of the worst-performing ETFs through the third quarter that we highlighted are now the best-performing ETFs of this month.

Copper Soars

Copper was one of the biggest victims of this year's market concerns. It's a commodity―one of the most-hated asset classes―and it's closely tied with China, which accounts for 40 percent of global demand for the metal.


That sent prices to around $2.20/lb in September, the lowest point since the financial crisis and down more than 50 percent from its peak levels in 2011. Prices have since rebounded about 10 percent after the International Copper Study Group said that, due to supply cuts, it expects the copper market to be in a 127,000 metric ton deficit next year, compared with the 228,000 surplus it expected before.


The Global X Copper Miners ETF (COPX | D-99) and the First Trust ISE Global Copper ETF (CU | F-73) are the Nos. 1 and 2 performers in October thus far, with gains of more than 30 percent.

COPX holds a diversified basket of global copper miners, which were pounded in the four years that copper has fallen. The fund has lost more than three-quarters of its value, and the recent bounce erased only some of those losses.

Meanwhile, CU is currently a global copper miner fund as well, but the ETF is set to change radically. After Dec. 18, the fund will switch tickers to "FTRI" and follow the Indxx Global Natural Resources Income Index, which is "a modified market capitalization-weighted total return index designed to track performance of dividend-paying companies which are involved in ... energy, materials, agriculture, water and timber," according to their press release.


Oil Fuels Energy ETF Rebound
Along with copper, another commodity that has bounced back recently is oil. From a low of $37.75 in late August, WTI crude oil topped $50 this week—for the first time since July. Surging demand and tumbling U.S. production prompted respected industry consultant PIRA Energy Group last Friday to call for a spike in prices all the way to $75 by 2017.

Unsurprisingly, energy equities have followed oil to the upside, with the most-beaten-down ETFs performing the best. The First Trust ISE-Revere Natural Gas ETF (FCG | B-98) led the pack, with a gain of 30.2 percent.

Unlike oil, natural gas hasn't rebounded much from its lows, but clearly investors are betting that the fuel, used primarily for winter heating and power generation, will eventually climb from current levels near $2.50/mmbtu.


On the heels of FCG is the PowerShares S&P SmallCap Energy ETF (PSCE | B-27), up 27.7 percent so far in October; the Market Vectors Unconventional Oil & Gas ETF (FRAK | B-29), up 23.1 percent; and the IQ Global Oil Small Cap ETF (IOIL | D-43), up 21.8 percent.


These are all ETFs with a smaller-cap tilt than the broad-based Energy Select SPDR (XLE | A-92). PSCE and IOIL are obviously small-cap funds, and those tend to perform well when oil is rising (and vice versa). FRAK is somewhere in the middle, holding a combination of large-caps, midcaps, and small-caps.

Indonesia's Comeback

One under-the-radar investment that's come back in October is Indonesia. ETFs tied to the country such as the iShares MSCI Indonesia ETF (EIDO | B-100)and the Market Vectors Indonesia ETF (IDX | C-83) increased by more than 20 percent this month.


Some of Indonesia's resurgence was a reflexive snapback following steep declines. At the September lows, both Indonesia funds were down 44 percent from their highs of this year amid concerns about the general economic slowdown in Asia and due to the country's crumbling currency (which hurts the dollar-denominated ETFs).


Still, there may be reason to be optimistic about Indonesia going forward. With GDP growth for the country expected to be 5.3 percent in 2016, the economy isn't anywhere near a recession by any means.


Top 10 ETF Of October

Ticker Fund Return (%)
COPX Global X Copper Miners 32.46
CU First Trust ISE Global Copper 30.82
FCG First Trust ISE-Revere Natural Gas 30.78
PSCE PowerShares S&P SmallCap Energy 29.64
PLTM First Trust ISE Global Platinum 26.13
EIDO iShares MSCI Indonesia 23.69
IDX Market Vectors Indonesia 22.69
FRAK Market Vectors Unconventional Oil & Gas 22.00
IOIL IQ Global Oil Small Cap 21.84
SLX Market Vectors Steel 21.67

Contact Sumit Roy @ [email protected].

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