The first half of 2012 is now in the books, dropping the curtain on a back-and-forth six months for many investors. Though the sentiment recently has been generally negative, the first half will close with positive year-to-date returns for many broad-based equity and bond ETFs–the result of a furious rally during the first two months of the year.
As the markets have frothed back and forth during the last six months, a number of asset classes have floated to the top. On the flip side of the coin, there have already been a number of big losers so far in 2012 as well. Below, we highlight the biggest movers from the first half of the year in the ETF universe–in both directions [for more ETF insights, sign up for the free ETFdb newsletter].
Best ETF Performers
The best ETF performers, excluding leveraged and inverse funds, represent relatively narrow sectors of the market and small economies around the world. The list also includes a number of relatively small ETFs–suggesting that many investors have missed out on these rallies:
5. iShares MSCI Philippines Investable Market Index Fund (EPHE): Up 27.5%
An young and increasingly wealthy population and healthy banking system are two of the many traits that bolstered this Philippines ETF. The outlook looks bright as spending on infrastructure increases and the political situation in Southeast Asia stabilizes.
4. iShares MSCI Turkey Investable Market Index Fund (TUR): Up 29.8%
Just east of the economic disaster that is Greece lies a pocket of optimism: Turkey. Having one of the lower unemployment rates within Europe, Turkey has prospered in the face of its neighbors’ troubles. This trend could continue as Turkey implements policies to increase domestic production in an attempt to improve their credit rating over the long term.
3. Van Eck Egypt Index ETF (EGPT): Up 32.3%
Amidst politically fueled turmoil in Egypt, the stock market has rallied its way to recovery following a drop of nearly 50% during 2011. A big portion of EGPT’s gains came immediately after a relatively smooth and peaceful election process, demonstrating once again that removal of uncertainty is often a driver of strong performance.
2. First Trust NYSE Arca Biotechnology Index Fund (FBT): Up 34.1%
The biotech sector has surged higher throughout 2012, largely shrugging off the struggles other corners of the market have faced. Thanks in part to a significant amount of M&A activity, biotech ETFs have posted impressive returns so far this year. In addition to FBT, State Street’s XBI, Van Eck’s BBH, and iShares IBB are all among the best year-to-date performers.
1. iShares Dow Jones U.S. Home Construction Index Fund (ITB): Up 41.7%
This ETF is a surprise to be leading up this list; the housing industry has been battered and bruised over the past few years, and few were expecting a major rally in the first half of 2012. But as the housing market continues on its long, slow road to recovery, homebuilders are returning from the brink of collapse to regain profitability and activity. State Street’s SPDR Homebuilders ETF (XHB) is another stand out performer.
Worst ETF Performers
Just as some of the best performers to date in 2012 are surprising entries, the list of the laggards perhaps includes a few unexpected entries. Below are five ETFs that struggled mightily in the first six months of 2012:
5. Barclays iPath Dow Jones-UBS Coffee ETN (JO): Down 27.8%
The first half of 2012 was a tough stretch for many commodity ETFs, as easing demand from emerging markets has weighed on prices. But coffee has seen a particularly tough path; this ETN had at one point lost close to 50% of its value on the year as supplies surged. Though it’s made up a bit of ground, JO is still deep in negative territory for the year.
4. Global X Gold Explorers ETF (GLDX): Down 29.1%
The first half of the year seemingly wan an ideal environment for gold mining stocks, as anxiety about the economic environment crept in. Yet gold essentially broke even during that period, and gold mining stocks have been hit hard as earnings have disappointed. GLDX offers exposure to gold exploration companies, which often see even more volatility than traditional miners [see also Why Jim Rogers Thinks Gold Will Drop 20%].
3. Van Eck Market Vectors Solar Energy ETF (KWT): Down 29.3%
It wasn’t that long ago that the solar power industry seemed like a “can’t miss” investment opportunity. But after losing close to 80% of its value over the last three years, solar power is perhaps headed towards extinction.
The troubles in Europe have exacerbated the industry’s struggles, as cash-strapped countries have been forced to scale back or cut off subsidies to the industry. Moreover, development of more viable alternative energy sources (such as natural gas) have clouded the outlook for solar power.
2. ProShares VIX Short-Term Futures ETF (VIXY): Down 57.3%
The volatility of stock markets in 2012 has been well documented; many indexes have seen big swings back and forth, and a risk on / risk off environment has emerged. But volatility ETPs have generally struggled as a result of steep contango in futures markets, which can eat into returns.
VIXY, linked to an index comprised of VIX futures, generally has a strong short-term negative correlation to U.S. and international stocks. And it has enjoyed a few periods of tremendous strength as stocks cratered. But over the longer term, volatility strategies have struggled in the first half of 2012.
1. Citigroup C-Tracks ETN Citi Volatility Index Total Return (CVOL): Down 65.3%
Designed to measure directional exposure to the implied volatility of large cap U.S. stocks, CVOL is primarily a trading instrument for those looking to place a short term bet against the market or use it as a hedging tool. CVOL effectively combines a long position in volatility with a short position in stocks, a strategy that can produce huge gains when stocks rally but backfire when equity markets show strength.
Disclosure: No positions at time of writing.
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