ETFs with 6-Year Winning Streaks

by on April 3, 2014 | ETFs Mentioned:

It has been five years since the current bull run began, as the S&P 500 has gained 170% since its bottom in March of 2009. SPY, along with approximately 150 other funds, have enjoyed five straight years of gains as a result, but few can tout six years of consecutive gains. In fact, there are just three ETFs that have had a positive return in every calendar year since 2008, meaning they were able to gain in a year when the worst recession since the Great Depression brutalized markets [for more ETF news and analysis subscribe to our free newsletter].

The 2008 Crash

2008 saw the SPDR S&P 500 ETF (SPY, A) begin to pull back from what were then historical highs, which was accelerated by the collapse of Lehman Brothers in September. The world’s largest ETF ended the year down nearly 37%, as a large majority of the investing world saw their portfolios take a big hit. Though more than three funds were able to make gains in 2008, there were just three that have been able to make gains every year since: the Short-Term Bond ETF (BSV, A), iShares 1-3 Year Credit Bond ETF (CSJ, A-), and SPDR Barclays Short Term Municipal Bond ETF (SHM, A):

SPY was able to vastly outperform the three funds from 2009-2013, but only after its worst-ever annual return in 2008. Here are a few key facts on these three fixed income products:

Ticker Assets Average Volume Yield YTD Return
BSV $14,260M 1,100,000 1.35% 0.34%
CSJ $13,238M 796,000 1.02% 0.11%
SHM $2,152M 609,000 0.88% 0.08%

Secrets to Success

There were 545 ETFs that completed a full calendar year, and just three of those were able to turn in six positive years in a row, which is no small feat. So what lies behind the success and resilience of these funds? First, all three of the products are bond ETFs. The Fed began rapidly cutting interest rates in mid-2007 and continued that theme until early 2009, where rates have stayed for more than five years. Cutting interest rates drags down the yields of these bond products, thereby increasing the price. So while your interest income has lessened, the value of your principal investment jumped higher.

The funds’ 2008 performances were also aided by a flight in assets from equities, as investors did their best to minimize losses in their portfolios. The following years saw the ETFs’ performances become more muted, though they were still able to benefit from their “safe haven” appeal as investors felt comfortable investing in the debts of corporations and governments alike [see also Safe Haven ETFs: Five Funds For Riding Out The Storm].

Continuing this success may be a tall order. Though an exact date has yet to be set, interest rates will eventually rise and wreak havoc on the prices and annual return of these three funds (though their yields will get a nice bump). At the same time, the performance of these funds has been stymied by explosive growth in equities; should that taper off, these three could be the beneficiaries of some strong buying action once again. There are too many factors at play to confidently predict where these products will be in several years time, but they are certainly funds worth keeping your eye on.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.