Hit And Flop ETFs Of February

|
Includes: DVP, FCG, PXE, RING, XLB, YMLP
by: Zacks Funds

After a brutal sell-off in January and amid heightened uncertainty, the major U.S. bourses are on track to end the month of February in the green. Stocks advanced in the back-end of the month with two consecutive weeks of gains courtesy of the bargain hunting, a recovery in crude oil prices and abating fears of a recession in the United States.

In particular, a slew of encouraging data pertaining to retail sales, consumer spending, producer prices, factory production and inflation points to regained momentum in the U.S. economy after a sluggish fourth quarter. Additionally, the second estimate of Q4 GDP data came in much higher than the initial estimate as the economy expanded at a faster rate of 1% annually than 0.7% reported by the Commerce Department in January.

Further, hopes of stimulus from the central banks in Europe and Japan renewed confidence in global economic growth. However, concerns over corporate profits, global economic growth and uncertainty in the timing of next interest rate hike continued to weigh on stocks during the month. As a result, investors' flight to safety in gold also continued with bouts of volatility.

That being said, we have highlighted the three best- and worst-performing ETFs of February.

Best ETFs

iShares MSCI Global Gold Miners ETF (NYSEARCA:RING) - Up 33.0%

Global uncertainty and financial market instability have brought back the allure for metals, especially gold, boosting their demand. Acting as leveraged plays on underlying metal prices, metal miners tend to experience larger gains than their bullion cousins in the rising metal market. In fact, RING is the biggest winner, having surged nearly 33% in value. This fund follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 30 securities in its portfolio.

The product is heavily concentrated in the top three firms - Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM) and Goldcorp (NYSE:GG) - which combine to make 29.5% of total assets. Canadian firms take the lion's share at 51.2%, while South Africa (19.4%) and the U.S. (11.4%) round out the top three. RING is the cheapest choice in the gold mining space, charging just 0.39% in fees and expenses. The fund has been able to manage assets worth $78.9 million.

Materials Select Sector SPDR ETF (NYSEARCA:XLB) - Up 8.5%

The material sector has been gaining strength, with robust performances in its chemical business as well as the metals & mining and steel industries. Growing automotive, a solid residential construction market and increasing production are expediting growth. That said, the most popular fund, XLB, with AUM of $2 billion, has gained 8.5% in February. It tracks the Materials Select Sector Index, charging investors 14 bps in fees per year.

In total, the fund holds about 29 securities in its basket, with Dow Chemical (DOW) and DuPont (DD) taking the top two spots, with over 11% allocation each. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share, while containers & packaging and metals & mining round out the top three positions. The product has a Zacks ETF Rank of 4 or "Sell" rating and a Medium risk outlook.

Deep Value ETF (NYSEARCA:DVP) - Up 7.1%

Value investing has been a safer option for investors in turbulent times, as these stocks are less susceptible to trending markets and exhibit lower volatility than their growth and blend counterparts. This fund tracks the TWM Deep Value Index, which provides an opportunity to invest in undervalued dividend-paying stocks within the S&P 500 index with solid balance sheets and strong earnings and free cash flow. Holding a small basket of 20 stocks, the fund is heavy on the top firms, with Exxon Mobil (NYSE:XOM), Symantec Corp. (NASDAQ:SYMC) and Newmont taking the largest allocation with a combined share of 23.3%.

Consumer discretionary, energy and industrials are the top three sectors, with 15% allocation each. DVP is unpopular in the large cap value space, with AUM of $65.8 million, and is a high-cost choice, charging investors 80 bps in fees per year. It has gained 7.1% in February and has a Zacks ETF Rank of 2 or "Buy" rating.

Worst ETFs

First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA:FCG) - Down 18.8%

Natural gas producers have been the biggest laggards as natural gas price dropped to the lowest level since 1999 on expanding supply and falling global demand. Notably, a mild winter in the U.S. and EU continues to push levels of demand down this month. Consequently, FCG, which offers exposure to U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas, is down 18.8% this month.

The fund follows the ISE-REVERE Natural Gas Index and holds 29 stocks in its basket, which is well spread out across components, with none holding more than a 5.61% share. The fund has amassed $145.5 million in its asset base, while charging 60 bps in annual fees. FCG has a Zacks ETF Rank of 3 or "Hold" rating with a High risk outlook.

Yorkville High Income MLP ETF (NYSEARCA:YMLP) - Down 18.0%

MLP is the corner that has received the worst blow from the oil price slide, with YMLP shedding the most - 18% this month. The fund follows the Solactive High Income MLP Index, charging 82 bps in annual fees. Holding 26 stocks in its basket, it is highly concentrated on the top 10 holdings at 57%, suggesting higher concentration risk. Oil, gas and consumable fuels take the top spot from a sector look at 66.4%, followed by energy equipment & services (20.9%) and gas utilities (10.4%). The product has managed $63.1 million in AUM.

PowerShares Dynamic Energy Exploration & Production Portfolio ETF (NYSE:PXE) - Down 15.9%

The energy sector remained under pressure from lower oil prices and unfavorable demand/supply imbalances. The recent jump in oil prices hasn't been able to drive the sector, with PXE plunging nearly 16% in February. This fund tracks the Dynamic Energy Exploration and Production Intellidex index and evaluates stocks based on a various investment criteria, including price momentum, earnings momentum, quality, management action and value.

It has 31 stocks in its basket, with none holding more than 7.38% of assets. It is a high-cost choice in the energy space, with 0.64% in expense ratio. The fund has AUM of $56.6 million and a Zacks ETF Rank of 5 or "Strong Sell" rating with a High risk outlook.

Original Post