Top Performing ETFs Of 2017

This year, financial markets experienced a calm that was perhaps never seen before. Volatility readings for equities were at or near record lows throughout 2017, something nobody predicted heading into the year after Trump’s presidential victory.

Encouraged by the lack of risk in the market, investors bid equities higher—much higher. The SPDR S&P 500 ETF Trust (SPY) is closing out 2017 with a gain of nearly 22%, the best total return since 2013.

In other words, a lack of volatility doesn’t mean a lack of gains. Quite the contrary. You could have thrown a dart and made out with a winning ETF. Out of the 2,100 ETFs on the market, almost 90% of them are on track to finish the year in the green.

With so many ETFs doing well, the threshold to join the list of top-performing funds is naturally quite high. We have put together two lists; one that excludes leveraged/inverse products and another that includes them. There’s only slight overlap between the two lists.

Disruptive Innovation ETFs Nearly Double

The narrower list, which excludes leveraged/inverse products, is topped by two actively managed funds issued by ARK, a company that focuses on thematic ETFs with a “disruptive innovation” bent. The Nos. 1 and 2 ETFs on the list, the ARK Web x.0 ETF (ARKW) and the ARK Innovation ETF (ARKK), both nearly doubled this year, with gains of 96.7% and 95%, respectively, in the year-to-date period through Dec. 19.

ARKK holds companies that work in fields related to genomics, next-generation internet and industrial innovation, while ARKW focuses solely on next-generation internet.

Both ETFs share the same top holding, the Bitcoin Investment Trust (GBTC), an over-the-counter traded bitcoin-tracking security that is up a stunning 2,700% this year. GBTC currently represents more than 11% of both ETF portfolios.

Aside from ARKW and ARKK, three other ETFs targeting next-generation themes also performed exceptionally well this year. The Global X Lithium & Battery Tech ETF (LIT) rallied 63.7%; the ARK Industrial Innovation ETF (ARKQ) jumped 58.8%; and the Global X Robotics & Artificial Intelligence ETF (BOTZ) climbed 57%.

Top-Performing ETFs Of 2017 (excluding leveraged/inverse)

Note: Data measures the total return for the year-to-date period through Dec. 19.

China & India Back In Vogue

The next group of ETFs to see outstanding gains this year are tied to emerging markets—China and India in particular. Emerging markets broadly have performed well in 2017 thanks to strengthening commodity prices, a more robust global economy and accelerating earnings growth.

The iShares Core MSCI Emerging Markets ETF (IEMG) and the Vanguard FTSE Emerging Markets ETF (VWO) surged 33.2% and 27.6% this year, respectively. But ETFs focused on China and India returned two or three times those amounts.

The WisdomTree China ex-State-Owned Enterprises Fund (CXSE), for example, gained 77% this year. The KraneShares CSI China Internet ETF (KWEB) added 69.2% in the period; the Columbia India Small Cap ETF (SCIN) rose by 58.9%; and the VanEck Vectors India Small-Cap Index ETF (SCIF) leapt 57.9%.

China’s economy has grown at an annualized rate of 6.9% through the first three quarters of 2017, above the government’s 6.5% target and 2016’s 6.7% growth rate. This marks the first time China’s economic growth has accelerated since 2010.

Meanwhile, India’s economy experienced a hiccup this year, as a new goods and services tax ate into growth. However, the country remains a darling of emerging markets investors amid expectations growth will reaccelerate thanks to favorable demographics and the pro-business policies of Prime Minister Modi.

Among ETFs, tech-heavy China funds like CXSE and KWEB—which hold major positions in surging stocks like Tencent, Alibaba and Baidu—fared the best. For India ETFs, focusing on small-cap stocks as SCIN and SCIF do worked the best this year.

Homebuilder ETF Tops All-Encompassing List

As always, there’s a handful of ETFs that don’t fit any of the broader themes that nonetheless managed to deliver outstanding returns during the year. The VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), up 69%; the ETFMG Video Game Tech ETF (GAMR), up 58.5%; and the iShares U.S. Home Construction ETF (ITB), up 56.3%, fit that bill.

The surge in homebuilder stocks is especially surprising. The group had its largest annual gain in 15 years due to sector rotation and the promise of tax cuts in 2018, according to J.P. Morgan. ITB’s return was fantastic, but add leverage on top of that, and you have the recipe for the top-performing ETF of the year—out of all ETFs.

The Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) headlines the second (all-encompassing) top performers list, with a whopping 250% return.

Top-Performing ETFs Of 2017 (all-encompassing)

Note: Data measures the total return for the year-to-date period through Dec. 19.

This list, which includes leveraged and inverse ETFs, also features multiple short VIX ETF products, which cleaned up thanks to record-low volatility and the decline in the Cboe Volatility Index. The REX VolMAXX Short VIX Weekly Futures Strategy ETF (VMIN) and the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) gained 198.9% and 188.4%, respectively.

Other leveraged ETFs tied to hot areas of the market also soared. The Direxion Daily CSI China Internet Index Bull 2X Shares (CWEB) rallied 162.9%; the Direxion Daily Semiconductor Bull 3x Shares (SOXL) leapt 156.2%; and the Direxion Daily S&P Biotech Bull 3X Shares (LABU) surged 121.5%.

Betting against natural gas with leverage also paid off. The VelocityShares 3X Inverse Natural Gas ETN (DGAZ) returned 144.9% as natural gas prices slid 30%.

Sumit Roy can be reached at [email protected]