What was the top-performing ETF of 2015? The answer might surprise you.
After all the hoopla surrounding the bursting of China's stock market bubble only a few months ago, it's somewhat ironic that the No. 1-performing ETF on this list is a China fund.
China ETFs Surprise To The Upside
The Market Vectors China AMC SME-ChiNext ETF (CNXT) surged 52.6% in the year-to-date period through Dec. 22, making it far and away the best-performing ETF of 2015 (excluding leveraged and inverse ETFs). That said, the fund's ascent has been anything but smooth.
At its highest point in June, CNXT was up as much as 129% for the year; at its lowest point in September, the fund gave back essentially all of those gains.
Since then, CNXT has slowly but surely rebounded along with the broader Chinese stock market. The ETF, launched less than a year and a half ago, tracks 100 small- to medium-sized companies listed on Shenzhen's SME and ChiNext boards. The fund has nearly $62 million in assets under management.
The fund has a much heavier tilt toward technology, consumer and health care stocks than the broader China indexes, and that's served it well this year.
Interestingly, CNXT wasn't the only China ETF to perform phenomenally in 2015. The Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap ETF (ASHS) returned an impressive 36%; the PowerShares Golden Dragon China ETF (PGJ) rose by 20.2%; and the KraneShares CSI China Internet ETF (KWEB) added 21%.
Small-Caps Outperform In China
As the name suggests, ASHS tracks the small-cap segment of China A-shares, which trade on the mainland Shanghai and Shenzhen stock exchanges. The small-cap bent of ASHS allowed it to handily outperform its large-cap counterpart, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR), which only rose by 3.8%.
In contrast to ASHS, which holds mainland China A-shares, PGJ only holds N-shares, or those China stocks that are listed on U.S. exchanges. That gives PGJ a tremendous focus on the technology sector, which represents nearly half of its portfolio. Consumer cyclicals are another big focus, representing a fifth of the fund's holdings.
Internet ETFs Surge
Meanwhile, the aforementioned KWEB focuses on the Chinese Internet sector. The fund holds overseas-listed China shares, primarily in the U.S. and Hong Kong. These include giants such as Alibaba, Tencent and Baidu.
For the most part, Internet companies have been doing well this year―and not just those based in China.
U.S. Internet giants such as Google, Facebook, Netflix and Amazon have been on an absolute tear this year. That pushed another two Internet ETFs into the top 10 performers list: the First Trust Dow Jones Internet ETF (FDN) and the PowerShares Nasdaq Internet ETF (PNQI), with gains of 21.8% and 20.3%, respectively.
FDN offers straightforward exposure to the 40 largest Internet companies in the U.S. PNQI offers slightly different exposure, by targeting Internet-related stocks listed on the Nasdaq, while capping its five biggest holdings at 8% of the portfolio and the remaining holdings at 4% of the portfolio.
Health Care Outperformers
Health care was the third group to muscle its way into the top 10 list. In a year in which the broader health care sector rose by only 6.2%, these ETFs were clear outperformers in the space.
The ALPS Medical Breakthroughs ETF (SBIO) delivered a handsome 26.2% return in the period in question. SBIO offers a unique twist on the biotech space by holding shares of companies that have at least one drug in either phase II or phase III of FDA clinical trials.
SBIO also targets small- to medium-sized companies with market caps between $200 million and $5 billion, and limits itself to those that have enough cash on hand to fund themselves for at least two years.
The other U.S. health care fund to make the cut was the PowerShares S&P SmallCap Health Care ETF (PSCH). PSCH tracks the S&P SmallCap 600 Index, giving it a heavy tilt toward companies with less than $3 billion in market cap.
The third and final health care fund on this list is the WisdomTree Japan Hedged Health Care ETF (DXJH), with a gain of 36.2%. In a year in which Japan ETFs in general have outperformed, DXJH was stellar.
A currency-hedged product focused on the health care sector in Japan, the ETF is an interesting way to capitalize on the country's demographic trend toward an older population.
Best-Performing Europe ETF
The only ETF focused on areas outside the U.S. and Asia to make this list is the iShares MSCI Ireland Capped ETF (EIRL). Aided by unprecedented stimulus from the ECB, European stocks in general did OK this year. However, it was Ireland that easily led the pack.
As the only pure-play Ireland ETF out there, EIRL's 21.8% return came despite another year of losses in the euro against the U.S. dollar, which weighs on returns for the dollar-denominated ETF.
|CNXT||Market Vectors ChinaAMC SME-ChiNext||52.62|
|DXJH||WisdomTree Japan Hedged Health Care||36.16|
|ASHS||Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF||35.98|
|SBIO||ALPS Medical Breakthroughs ETF||26.17|
|FDN||First Trust Dow Jones Internet||21.75|
|EIRL||iShares MSCI Ireland Capped||21.75|
|KWEB||KraneShares CSI China Internet||20.95|
|PNQI||PowerShares NASDAQ Internet||20.26|
|PGJ||PowerShares Golden Dragon China||20.24|
|PSCH||PowerShares S&P SmallCap Health Care||19.82|
Table excludes leveraged and inverse ETFs. Data through Dec. 22.
Contact Sumit Roy at [email protected].