Best Performing ETFs: 2Q 2020

At the halfway mark for the year, it’s not surprising to see the S&P 500 lower. Naturally, amid the most severe pandemic in a century and the resulting economic downturn, you’d expect stocks to be down.

What is surprising, however, is how little the S&P 500 has lost. A relatively pedestrian decline of 3.1% is almost nothing in the context of (arguably) the biggest economic downturn since the Great Depression.

Yet that headline figure belies the immense pain that has occurred in certain parts of the market. The Invesco S&P 500 Equal Weight ETF (RSP), which is down 10.8% year to date, may be a better indicator of this widespread damage.

Worse still, the Energy Select Sector SPDR Fund (XLE) has plunged a whopping 34.6% year to date; the Financials Select Sector SPDR Fund (XLF) has fallen 23.7%; and the Industrials Select Sector SPDR Fund (XLI) has shed 14.6%.

Those sector ETFs tell the tale of how lousy 2020 has been for most—but not all—companies.

Holding The Market Up
On the other side of the ledger, you have the Technology Select Sector SDPR Fund (XLK) trading with a 14.9% gain for the year; the Consumer Discretionary Select Sector SPDR Fund (XLY) trading up by 2.6%; and the Communication Services Select Sector SDPR Fund (XLC) trading higher by 1.2%.

These are the sectors that are holding the S&P 500 Index up, offsetting the losses in other areas. In recent days, shares of Apple, Amazon, Zoom and others have touched new all-time highs as demand for their goods and services increase due to the pandemic.

It’s an unusual situation: These companies are actually thriving in what is an extremely negative environment for most businesses.

ETFs that take more concentrated positions in these types of companies have performed exceptionally well this year, with gains of 30% or more. Here are some of them:

Best Performing ETFs Of The Year (ex. leveraged/inverse/VIX ETPs)

Data measures returns through the end of June 2020

Cloud & E-commerce Winners
Near the top of the heap is the WisdomTree Cloud Computing Fund (WCLD), with a strong 52.5% return through the first six months of the year. A competing product, the Global X Cloud Computing ETF (CLOU), has gained a smaller-but-still-impressive 36% year to date.

Both funds hold stocks of companies involved in cloud computing software and services. These include companies like Zoom, SalesForce and Dropbox. Much of the portfolios are focused on enterprise software, which has seen a jump in demand due to the work-from-home environment.

E-commerce plays like Wix.com and Shopify are also among the holdings, though e-commerce per se is not the focus of the funds.

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

For that, investors should look toward a trio of ETFs that directly target the online commerce space. The ProShares Long Online/Short Stores ETF (CLIX), the ProShares Online Retail ETF (ONLN) and the Amplify Online Retail ETF (IBUY) are all among the top-performing ETFs of the year.

Online commerce has been one of the greatest beneficiaries in the post-COVID world, fueling CLIX to a year-to-date return of 48.3%.

As its name suggests, CLIX goes long e-commerce stocks, while shorting stocks of brick-and-mortar retailers. That’s a strategy that’s paid off handsomely in a world in which brick-and-mortar stores have had to shut down, while online stores thrive.

ONLN and IBUY are more traditional long-only funds, but they’re still up more than 36% each.

Outside The Internet
It’s pretty clear that the ETFs that have performed the best this year largely hold stocks of companies involved in delivering goods and services over the internet. That goes for the aforementioned WCLD and CLOU as well as for CLIX, ONLN and IBUY.

It’s a similar theme for the O’Shares Global Internet Giants ETF (OGIG), which holds megacaps like Amazon, Microsoft, Alphabet, Facebook, Alibaba and Tencent.

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

Likewise, the Global X Video Games & Esports ETF (HERO), the VanEck Vectors Video Gaming and eSports ETF (ESPO), and the Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD) each provide exposure to the video games that are delivered and/or played online.

Genomic Outperformance
That said, one ETF among the best performers that has nothing to do with the internet is the ARK Genomic Revolution ETF (ARKG). This is an actively managed fund that targets stocks of companies involved with genomics.
Next-generation therapeutics and diagnostics, using innovations like gene editing and liquid biopsies, are the focus of this fund.

ARKG is just one of four ETFs from ARK Invest that are among the top 20 best-performing ETFs of the year. The others are the ARK Next Generation Internet ETF (ARKW), the ARK Innovation ETF (ARKK) and the ARK Fintech Innovation ETF (ARKF).

Top Bond Fund
Rounding out the list of top-performing ETFs of 2020 are two notable funds, the PIMCO 25+ Year Zero Coupon US Treasury Index ETF (ZROZ) and the Renaissance IPO ETF (IPO), each up more than 30%.

ZROZ is the only fixed income fund on the list. It’s one of the longest duration bond products on the market, making it extremely interest rate sensitive. With rates near record lows, that’s been a boon for the fund.

Finally, the Renaissance IPO ETF (IPO) provides exposure to new initial public offerings by holding the top 80% of new IPOs by market cap. It’s a strategy that’s worked well in 2020 thanks to some of the stocks the fund picked up last year—Zoom, Peloton, CrowdStrike, DataDog and others. Many of those IPOs from last year’s class have been beneficiaries of the post-COVID environment.

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2