Passive investors allocating to Middle Eastern equities, US stocks and leveraged short bond strategies have witnessed some of the highest total returns over the opening half of 2018, according to FE Analytics.
While the return of volatility in the opening quarter of 2018 made it hard for investors to make any meaningful progress, the second quarter of the year saw them benefit from much more benign conditions. However, this does not mean that gains have been seen across the board.
As we looked at in a previous article, the strongest performing fund in the Investment Association universe over the first six months of 2018 was Baillie Gifford American – which was up 29.77 per cent. Baillie Gifford Long Term Growth, Neptune Global Technology and JPM US Smaller Companies were other funds performing strongly in the year’s first half.
However, how have passive investors fared over the six-month period? The table below shows how the equity sectors in the Global ETF universe have performed since the start of the year.
Source: FE Analytics
As can be seen, 13 of the 30 ETF equity sectors made a positive return over the six-month period – led by the 9.34 per cent rise in the average Middle East and North Africa tracker.
The sector has benefitted from improving investor sentiment, based on a rising oil price (which has almost doubled over the past year) and the view that the region is better prepared for rising US interest rates than its emerging and frontier market peers. Added to this is the attention that MSCI’s decision to upgrade Saudi Arabia to emerging market status has brought to the region.
Within the Gbl ETF Equity MENA sector, the three highest returning products over the first half were HSBC Amanah Saudi 20 ETF (up 17.63 per cent), Xtrackers MSCI GCC Select Swap UCITS ETF (up 17.38 per cent) and VanEck Vectors Egypt (up 12.84 per cent).
ETFs tracking US small-caps posting the next highest total return as investors continue to look for growth opportunities in the world’s largest economy. ProShares UltraPro Russell2000 was the strongest performer with a 20.16 per cent gain, followed by Direxion Daily Small Cap Bull 3x Share (up 19.95 per cent) and ProShares Ultra Small Cap 600 (up 19.20 per cent).
In third place is the Gbl ETF Equity North America sector. While investors continue to keep a close eye on valuations in the US market, the latest BofA ML Global Fund Manager Survey showed that asset allocators moved from a net 15 per cent underweight to the country to a 1 per cent overweight in June.
The highest total return was the 21.45 per cent made by Lyxor UCITS ETF Nasdaq-100 Daily Leverage, followed by 12.35 per cent from BetaShares NASDAQ 100 ETF and 11.17 per cent from Invesco QQQ.
Gbl ETF Equity Emerging Europe was the ETF sector with the worst performer of 2018’s first half after its average member fell by 12.77 per cent. ComStage MSCI EM Eastern Europe ex-Russia TRN UCITS ETF posed the highest loss with a fall of 16.11 per cent.
Source: FE Analytics
Moving over to the ETFs that focus on bonds and FE Analytics shows that the best performance came from the Gbl ETF Fixed Int Other sector, where the average member was up 5.44 per cent. This peer group is home to a mixed bag of funds, holding those with bonds that are denominated or hedged in a mixture of currencies and that do not meet the criteria of the other fixed interest sectors.
It’s a small sector with only five members. The best performer was Boost US Treasuries 10Y 5X Short Daily ETP, which made 15.39 per cent; Boost US Treasuries 10Y 3X Short Daily ETP was up 10.92 per cent while iShares DEX Short Term Bond Index gained 2.97 per cent.
Gbl ETF Fixed Int USD Index Linked comes in second place after its average member made 2.66 per cent. The three highest returners are Lyxor US$ 10Y Inflation Breakeven UCITS ETF (up 5.58 per cent), Vanguard Short Term Inflation Protected Securities (up 4 per cent) and UBS ETF Bloomberg Barclays TIPS 1-10 UCITS ETF (up 3.40 per cent).
In the Gbl ETF Fixed Int USD Short/ Medium Maturity sector – which was the third best on average – Direxion Daily 7-10 Year Treasury Bear 3x Shares leads the pack with a 10.79 per cent total return, followed by ProShares UltraShort 7-10 Year Treasury’s 8.11 per cent and Amundi ETF Short US Treasury 7-10 Daily’s 6.89 per cent.
The worst performing bond sector was Gbl ETF Fixed Int Emerging Markets, where the average fund lost 3.82 per cent. BlackRock iShares J.P. Morgan USD Emerging Markets Bond ETF came off worst after losing 9.38 per cent.
Source: FE Analytics
When it comes to ETFs with a multi-asset approach, the Gbl ETF Hedge/Stru Prod Fixed Int sector had the best opening half of the year thanks to a 7.07 per cent gain. However, there is only one fund in the sector – ProShares Inflation Expectations ETF.
Gbl ETF Absolute Return was the second best performer, with Bedford Row Capital Advisers NQ Minerals International making 6.01 per cent.
None of the other multi-asset sectors made more than 1 per cent over the six-month period, with Gbl ETF Mixed Asset Flexible, Gbl ETF Mixed Asset Cautious, Gbl ETF Hedge/Stru Prod Mixed, Gbl ETF Hedge/Stru Prod Equity and Gbl ETF Mixed Asset Intl sitting in negative territory.