As 2012 came to a close last year, we sat down and picked out some of the most promising ETF investments for the coming year. While few could have predicted just how far 2013′s bull-run would take us, we placed our ideas in various corners of the market to give investors of all shapes and sizes something that could fit their objectives. There has certainly been a lot of activity this year, as the S&P 500 notched its best annual performance in a decade, helping a lot of investments climb during the 12-month stretch.
In an effort to keep ourselves honest, we take a look back at the predictions we made for the year and how they performed – and not all of them were winners. Be sure to tune in next week as we release our rapid fire ideas for 2014 and the best ways to navigate markets that are already sitting at historical highs.
The E-TRACS 2x Leveraged Long Alerian MLP Infrastructure Index (MLPL, B+) had a strong 2013, as it outperformed broad markets and paid a handsome dividend. After lagging in 2012, MLPs roared back in 2013, allowing this ETN to jump nearly 45%. All the while the fund made distributions that amounted to $5.025, making for a return of 9.77% on dividends alone. The two combine for a total return of nearly 55% for anyone lucky enough to have held this ETN for the entirety of the year.
2013 was simply not the year for emerging markets, as the MSCI Thailand Capped ETF (THD, A-) lost approximately 13.5% on the year. While developed economies, mainly the U.S., were able to charge forward all year long, emerging markets lagged behind and suffered through some volatile patches. Despite this, on 7/5/2013 the fund made its highest distribution ever of approximately $1.47 per share, and the company typically makes a second distribution in the last few days of December.
The Physical Palladium Shares ETF (PALL, A-) had a volatile outing in 2013, as it failed to establish a meaningful direction. Though many analysts at big financial institutions had the commodity pegged for a large gain, palladium’s price was all across the board this past year. It vastly outperformed its precious metal peers (gold, platinum and silver), but it still lagged well behind the returns of the market. PALL fell nearly 1.8% for 2013.
The U.S. Market Neutral Anti-Beta Fund (BTAL, B) was an idea for those who were uneasy about markets going into 2013, as many were. As we warned in 2012, this was a purely defensive strategy that would head south if markets ran higher. Unfortunately for those invested in this fund, markets did run higher and BTAL had nowhere to go but down, losing approximately 12.8% for the year. Though the fund is still considered a strong option for those on the defensive side, it will almost always drag when markets are surging.
Our favorable outlook on the SPDR Homebuilders ETF (XHB, A+) did not pan out quite as we had hoped. As the housing sector was recovering in 2012, it seemed that the trend pointed to a handsome 2013 for this sector. While XHB’s 2013 return of 19.7% is nothing to scoff at, it still failed to outperform most broad benchmarks. As the chart below displays, the first few months of the year looked promising for this ETF, but the latter half of the year watched XHB fall into a range-bound pattern that it could not break by the time the year expired.
Our positive view on the Senior Loan Portfolio ETF (BKLN, B) was based on those looking for a stable income play, not necessarily a large return on capital. BKLN was able to do just that, paying out a steady monthly dividend and also managing to rise 3.6% on the year. With interest rates still sitting at historical lows and projected to do so for at least another year, BKLN still remains a strong option for those looking for a fund that provides income without too much volatility or daily movement (note that the following chart is not adjusted for BKLN’s monthly dividend payouts).
The iShares MSCI Poland Capped ETF (EPOL, B+) was unable to keep up with the runaway bull market, losing 1.5% this year. After navigating through the financial crisis and remaining debt-free, Poland has become more of a hotspot for investors in recent years. The fund managed to post inflows on the year just over $40 million, which is more than 15% of its current assets.
As natural gas continues to become a more prevalent form of energy, our pick in the ISE-Revere Natural Gas Index Fund (FCG, C+) rode on the backs of producers of the commodity. As we had suspected, the theme on natural gas improved in 2013 and allowed FCG to gain a handsome 22.3% for the year.
The year started off well for the Market Vector Mortgage REIT Income ETF (MORT, A-) as REITs performed very strongly through the first four months of 2013. But when May rolled around, the sector as a whole took a big hit from which it has yet to recover. MORT lost 1.8% on the year but was able to maintain a strong dividend of over 12% for its shareholders (note that the following chart is not adjusted for MORT’s monthly dividend payments).
We considered our pick in the Japan Hedged Equity Fund (DXJ, A-) something of a dark horse. DXJ hedges exposure to fluctuations between the value of the U.S. dollar and the Japanese yen, thereby effectively tracking the performance of Japanese equities that is attributable solely to stock prices. It would have been nearly impossible to predict just how well this fund would perform in 2013, as it surged more than 36%. On top of that, DXJ saw a massive influx in assets of over $9 billion; making it easily one of the most successful ETFs for the year.
We picked the MSCI Europe Financials Sector Index Fund (EUFN, B) as something of a contrarian play. After struggling for some time, the eurozone showed some signs of life in 2013, helping to lift this fund 22.7%. As the eurozone continues to stage its recovery, EUFN may still have room to run higher in the coming months, though it did not quite keep pace with broad benchmarks in 2013.
Diversifying fixed-income exposure has been a major theme over the last two years as the U.S. has lost some of the luster it once held. Working off of that trend, we chose the PowerShares Emerging Markets Sovereign Debt Portfolio ETF (PCY, A) for investment in 2013. Unfortunately, emerging markets took a beating all year long, as investors were too preoccupied by soaring U.S. benchmarks and strengthening economic indicators. PCY lost 9.5% on the year and will look to find some positive momentum in 2014.
With income investing being one of the most popular themes in investing, our pick in the Dividend Appreciation ETF (VIG, A-) was an easy one. The fund’s holdings consist of companies that have raised their dividends for at least 10 consecutive years, giving it a solid base to work from. VIG jumped 26.3% on the year while also paying out a yield of just over 2%.
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Disclosure: No positions at time of writing.