With 2013 nearly half complete, now is a good time to look at this year's top-performing ETFs to see what has worked, what might keep working and which funds could be vulnerable to second-half pullbacks. Before getting to the good stuff, some housekeeping is in order.
First, 10 ETFs that will be highlighted are all plain vanilla, non-leveraged funds. Second, the list and performance data come courtesy of ETF Replay, which features the 10 best and 10 worst non-leveraged funds on the front page of its web site.
Health Care Rules
An investment in the Health Care Select Sector SPDR (NYSEARCA:XLV) has paid off this year as that ETF has surged more than 20 percent. However, XLV's performance pales in comparison to what biotech ETFs have delivered. Interestingly, one so-called expert labeled biotech ETFs as "dangerous" in February while touting the virtues of Amgen (NASDAQ:AMGN).
That was not the best of calls because biotech ETFs big and small have been stellar performers this year. Lead by the Market Vectors Biotech (NYSEARCA:BBH), an ETF that coincidentally allocates 13 percent of its weight to Amgen, three biotech ETFs are found among the top-10 year-to-date performers. BBH is in the seventh spot while the iShares Nasdaq Biotechnology Index Fund (NASDAQ:IBB) is number eight.
The average return for that trio is over 27 percent, but the best-performing health care to this point in 2013 is the SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH), which is up almost 29 percent. Noteworthy about XPH is that the ETF's 29 holdings have a median market cap of just over $4 billion, proving the fund is not heavy on large-cap, blue-chip pharmaceuticals names such as Merck (NYSE:MRK) and Pfizer (NYSE:PFE).
A Musk-y Scent
The four best non-leveraged ETFs on a year-to-date basis have average returns of 42.3 percent and that group is led by the Guggenheim Solar ETF (NYSEARCA:TAN), which is up nearly 59 percent. The quartet has a couple of things in common.
First, all four are alternative energy funds with the Market Vectors Global Alternative Energy ETF (NYSEARCA:GEX), Market Vectors Solar ETF (NYSEARCA:KWT) and the PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW) rounding out the group. Second, three of those ETFs feature exposure to at least on Elon Musk stock, either SolarCity (NASDAQ:SCTY) or Tesla (NASDAQ:TSLA). KWT is the exception, but PBW holds both of those stocks to the tune of an almost 10 percent combined weight. And do not forget that the iShares S&P Global Clean Energy Index Fund (NASDAQ:ICLN) is in the ninth spot on the top-10 list. Although ICLN has no Elon Musk exposure, it is up 26.6 percent year-to-date.
Small, So What?
Folks just keep on picking on small ETFs with no empirical evidence to support their assertions although it it has already been proven that those assertions are usually misguided.
The top-10 ETFs prove as much. Only one, IBB, has over $1 billion in assets under management. TAN, the best performer, has just $110 million. The Guggenheim Spin-Off (NYSEARCA:CSD), the one member of the top-10 crew that we have not highlighted, has less than $190 million in assets despite a lengthy track record of outperforming the S&P 500 by wide margins.
Of the three Market Vectors ETFs on the list, only BBH has more than $100 million in assets. KWT has just $15 million in AUM. PBW has a decent $173.5 million, but ICLN has just $36.2 million, according to iShares data. XPH and PBE combine for about $600 million in AUM.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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