The recent economic crisis has led to a frenzy of activity on Wall Street, as we have seen dramatic swings in both directions on a regular basis. Starting with a debt deal that did little to reassure investors, markets began to drop. Next came the downgrade from S&P, the first ever from a domestic credit rating agency, shaking markets around the globe as worries about a prolonged period of stagnant economic growth intensified. Stocks recovered slightly towards the end of last week, but a statement from Fed Chair Ben Bernanke seemed to scare some investors as the Fed decided to hold rates at the current ultra-low levels until mid-2013, suggesting there is little hope for our economy to experience substantial growth in the coming years [see also Three Equity ETFs Crushed By Monday’s Massacre].
The chaos that has blown through Wall Street over the last two weeks or so has left many investors’ portfolios drenched in red; stock markets around the globe have been battered by concerns about the debt situations in the U.S. and Europe. There have, of course, been a few securities that have thrived from the extreme volatility and surge in negative sentiment; several inverse and volatility-related funds jumped by 50% or more during a few sessions last week [see Six ETFs Up 45%].
Among more traditional long-only funds, there have been few asset classes that have come through the recent storm in better shape than when they entered. But some have fared much better than others, managing to hold their ground relatively well as their peers cratered during the recent crisis.
Between the close of trading on August 3 and the final bell a week later, the S&P 500 lost about 11%–a staggering slide during such a short period of time. Many equity and fixed income indexes experienced similarly steep losses, while others weathered the storm quite a bit better:
MSCI Switzerland Index Fund (EWL)
This ETF is designed to track an index which measures the performance of the Swiss equity market. Switzerland has been making headlines all year as its currency, the franc, has been surging past the competition as investors gravitate towards safe havens with strong underlying fundamentals–a club that has essentially dwindled to the franc and gold bullion. The franc appreciated so significantly that the Swiss National Bank had to slash rates in order to curtail the currency, as the steep run-up in the value began to pose a problem for the country’s growth trajectory. While a strong currency can be a good thing, the strength that the franc harbors is deadly to Switzerland’s crucial export sector, forcing the bank to intervene. Despite cutting rates to near zero, the franc stumbled for a while and went right back on its way up, as the S&P downgrade probably contributed to more investors flocking to it as opposed to the greenback [see also Swiss Franc ETF (FXF): The Overlooked Safe Haven].
That being said, Switzerland has one of the few attractive economies left in the world, and especially in the crisis-ridden European Union. This ETF holds big names like Nestle and Credit Suisse in its top holdings, and the portfolio held up rather well as the rest of the euro zone crumbled. During the one week stretch that saw the Vanguard European ETF (VGK) lose 13.3% and the iShares MSCI EMU Index Fund (EZU) drop nearly 15%, EWL lost a much more reasonable 8.3% during the one week stretch. That’s still a painful weekly performance figure to swallow, but the relative strength highlights once again the safe haven appeal of Switzerland.
Middle East Dividend ETF (GULF)
The Middle East was the focus of the media for the first half of 2011, as a number of revolutions and rebellions swept through countries like Tunisia, Egypt, and others. Once the instability began in that region, the majority of equities tracking these nations plummeted, with the Egypt ETF, EGPT, suspending the creation of new shares for several weeks as the Egyptian stock market was shut down for an extended period of time. Now, it seems like this region may come back into focus for a completely different reason.
Over the past week, numerous emerging markets were slaughtered, with countries like Russia losing over 20%, and the broad based VWO dipping over 14%. GULF, on the other hand weathered the storm with losses of just 4.4% during the one week stretch that hammered other regions of the world, making it one of the best performing emerging market ETFs on the week. GULF is primarily composed of large and medium cap firms, and from a country perspective focuses its assets on Qatar, Kuwait, UAE, and Morocco among others.
Peritus High Yield ETF (HYLD)
HYLD is the only actively managed ETF in the High Yield Bonds ETFdb Category, giving investors interested in junk bonds a way to tap into this asset class through an experienced management team. The fund has delivered impressive results so far this year, but really stood apart from the competition during last week’s chaos. Not surprisingly, junk bonds were hammered along with equities, as concerns about a wave of defaults began to pop up [see also Short-Term Bond ETFs: The Best Place To Stash Cash?].
From August 3 to August 10, the stretch that saw a 11% haircut to SPY, HYLD lost about 2.6% of its value. While that performance may be disappointing on an absolute basis, it is rather impressive compared to the far more severe losses suffered by other similar funds; the ultra-popular HYG lost 5.9% during the same stretch, and the $6 billion JNK slid by more than 6%. The stellar performance was attributable in part to a meaningful allocation to cash, highlighting the potential advantages of the flexibility of active products. HYLD managed to put another 300 basis points or so between itself and the competition during the chaos, and now owns a healthy lead over more popular junk bond ETFs in terms of year-to-date returns [compare junk bond ETF returns with our new and improved data capabilities].
S&P CTI ETN (LSC)
This ETN applies a long/short strategy to the commodity space, as it is comprised of 16 different commodity futures contracts. Commodities have been under fire this year as some have been decimated, while others like gold, have been among the strongest yielding investments thus far in 2011. Note that this unique strategy comes at a cost of 75 basis points, but while that may seem a bit too steep for an ETN, its performance over the past week may indicate otherwise.
During a week where most broad-based commodity ETPs were drenched in red–DBC sank by about 5% on the week–LSC’s methodology paid off for investors in this small exchange-traded note. The ETN gained about 1.6% as commodity markets crumbled around it.
Disclosure: No positions at time of writing.
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