Broad market indices enjoyed another up week in the context of a decent jobs report, a surprise decision to lift the ban on offshore drilling, and no new damaging news markets haven’t already digested. Emerging markets were especially strong, as well as commodities in the face of a declining US dollar for the week. There has been some press this week about funds pouring into high yield debt and companies sitting on cash hoards that are likely to start pumping out dividends which begs the question as to what this might portend for high yield ETFs. Is this the end of the hot sector rally and a move into income? It’s tough to say but for now, a rising tide lifts all ships and the only investors feeling the pain of late should really be the shorts.
For the week ended 4/4/2010, here’s a snapshot of some of the best performing ETFs of both the traditional and leveraged sort:
PLTM -First Trust ISE Global Platinum Index – Up 7% – This is a relatively new ETF which is the only one that actually seeks the match the return of the underlying Platinum metal itself. There are some great fundamentals for the metal, as well as Palladium’s sister ETF (PALL) as outlined further in this Platinum ETF Review. Essentially, even though the US hit a pretty severe economic headwind, it was pretty much just a hiccup for much of the developing world. These metals are key raw materials for many industrial uses there, especially for consumption in catalytic converters in cheap cars that are being mass produced as the standard of living in much of the world improves rapidly.
USV – iShares Silver Trust – Up 7% – Silver has also been hot, very much so in the context of a run on precious metals due to a weakening US Dollar partially, as well as the notion that silver actually has some industrial utility, more so than gold. While both metals have taken a breather thus far this year, over the prior 1 year period, USV is up 29% vs. gold’s 18% via the ETF (GLD). For the year 2009, SLV doubled the return of GLD at 66% vs. 32%.
KOL – Market Vectors Coal ETF – Up 7% – Also benefiting from the weak dollar trend this week, coal was strong last week. While some investors may have posited that the administration’s announcement that the ban on offshore drilling should be lifted, the reality is, the estimated reserves are actually a drop in the bucket and will take more than a decade to develop. As such, coal continues to perform strongly in the face of a mildly improving economy and no immediate threat from other energy sources.
EDC – Direxion 3X Emerging Markets – Up 16% – What else can one say about emerging markets other than, that’s where the money’s going. While investors in emerging markets suffered more during the crash in late 2008 into 2009, the rebound in the returns of bourses outside the West has been spectacular. While the year to date returns don’t look that impressive at 7.5% vs. 5.7% for the S&P500, the 1 year return for EDC is 274% vs. 40% for the S&P500. As with all leveraged ETFs, there are some deceiving characteristics for investors who think they’re getting triple the return of an index over time. They’re not, unless they trade daily. There are daily rebalanced instruments, so over time, if there’s any volatility both up and down and not a pure sustained trend up or down, over long periods of time you’re very likely to actually lose money. That’s why I’ve been shorting leveraged ETFs on both sides (not EDC specifically) which has actually been quite profitable. Just keep this in mind if going long any leveraged ETF below as well.
ERX – Direxion Daily Energy Bull 3X Shares – Up 12% – This leveraged energy ETF had a strong showing for the week as well, in spite of the oil drilling announcement which many would have thought would have shoved some downward pressure on the price of oil. Not that case last week. Oil prices are pushing on a recent barrier with a possible breakout from the $70-$85 range we’ve seen for months. A mild economic recovery has analysts projecting that industrial output will be rising substantially in the coming months, driving energy prices up.
Disclosure: No long position in any ETFs mentioned above. Paired short position on ERX/ERY as outlined above in EDC section above.