Coffee funds brew up the best returns so far this year.
Treasury bond ETFs may have dominated the headlines in the first half of the year with a performance that few anticipated as yields dropped. But it was commodities, gold miner and international equity funds linked to India that stood out with outsized returns in the first six months of the year.
The iPath Dow Jones-UBS Coffee Total Return ETN (JO | B-94) was the single best-performing exchange-traded product year-to-date, rallying 62.30 percent, according to our data. (We are not including leveraged and inverse funds here.) Following it was the competing iPath Pure Beta Coffee ETN (CAFE | B-97), which tacked on gains of 57.5 percent in the same period.
To put those performances in perspective, consider that the broad U.S. stock market, as measured by the SPDR S&P 500 ETF (SPY | A-98), rose only 6.6 percent, as the chart below shows.
Chart courtesy of StockCharts.com
These commodities strategies benefited greatly from a surge in coffee prices tied to one of the worst droughts Brazil has seen in some 50 years. Brazil is the world’s top coffee producer and exporter, and the dry spell there has reportedly hurt crop yields.
What’s interesting is that these gains have come even as investors yanked money out of both funds. Year-to-date, JO and CAFE have faced $106 million and $7 million in net redemptions, respectively. Commodities ETFs, collectively, bled assets in the first half of the year to the tune of $1.02 billion, according to our ETF Flows tool.
India ETFs Shine
International equity ETFs, meanwhile, raked in a whopping $23.4 billion in fresh new assets—almost as much as did U.S. equity ETFs—year-to-date. Today almost 25 percent of U.S.-listed ETF assets are tied to foreign equity funds.
Among them, the Market Vectors India Small Cap ETF (SCIF | D-60) was the best-performing, with gains of 60.8 percent since the beginning of the year. Two other small-cap funds—the EGShares India Small Cap ETF (SCIN | F-60) and the iShares MSCI India Small-Cap ETF (SMIN | F-95)—rallied more than 43 percent in the same period.
India’s Infrastructure Reform Is Key
The installment of new political leadership in India is behind the upward momentum in these funds. To quote Steve Cucchiaro, chief investment officer of the world's largest ETF strategist, Windhaven Investment Management, everyone expects significant reforms in that country under the command of Prime Minister Modi.
“India is a very interesting place right now,” Cucchiaro said at the ETF.com Global Macro Conference in New York this week. “There’s been a lot of speculation about the election and how Prime Minister Narendra Modi would come in and it would not be business as usual, and there would be structural reforms.
“If there’s ever a place that has so much potential and so much room for improvement in infrastructure and so many other things, you have to say India is that place,” Cucchiaro added.
The EGShares India Infrastructure ETF (INXX | D-25) was the eighth-best-performing fund year-to-date, with gains of 38 percent.
Precious Metals Miners Outperforming
Both the Global X Gold Explorers ETF (GLDX | D-19) and the Market Vectors Junior Gold Miners ETF (GDXJ | C-34) were among the best-performing strategies of 2014. Both funds invest in some of the smallest miners in the market.
GLDX, for example, owns small exploration firms whose riskiness translates into higher volatility. The portfolio also comprises less than 20 names, and offers plenty of geopolitical risk given its global reach, according to our ETF screener.
The segment of gold miner equities has benefited from a rebound in gold prices, which have advanced more than 9 percent year-to-date in a choppy ride, Sumit Roy, commodities analyst at HardAssetsInvestor.com, told ETF.com.
“A lot of investors believe that Fed tapering and potential interest rate hikes have already been priced into the sector, and that last year’s drop was overdone,” Roy said. “The sharp rebound this year is a reflection of that view.”
|Ticker||Fund||Issuer||First Half 2014 TRR (%)||First Half 2014 AUM ($, M)|
|JO||iPath Dow Jones-UBS Coffee Total Return ETN||Barclays Capital||62.30||88.10|
|SCIF||Market Vectors India Small-Cap||Van Eck||60.79||395.95|
|CAFE||iPath Pure Beta Coffee ETN||Barclays Capital||57.58||6.87|
|SCIN||EGShares India Small Cap||Emerging Global Shares||47.04||33.22|
|SMIN||iShares MSCI India Small-Cap||BlackRock||43.61||9.34|
|GLDX||Global X Gold Explorers||Global X||43.09||48.19|
|SILJ||PureFunds ISE Junior Silver (Small Cap Miners/Explorers)||Factor Advisor||43.04||7.31|
|INXX||EGShares India Infrastructure||Emerging Global Shares||37.97||58.75|
|GDXJ||Market Vectors Junior Gold Miners||Van Eck||32.66||2,244.99|
|AGF||PowerShares DB Agriculture Long ETN||Invesco PowerShares||31.72||3.53|