The first four months of the year turned out to be pretty
solid for the U.S. equity market. In the period, both the S&P
500 and the Dow flourished only to record new multi-year and then
all-time highs. Equities and
saw a huge amount of asset inflow signifying that investors were
turning to riskier assets for higher returns (
3 ETF Strategies for the Second Quarter
The strong momentum in Wall Street since the start of the year
indicates that the bull may be back in the market. A number of
market sectors have performed remarkably well in the year-to-date
period, thanks to the market optimism.
However, it has been noticed historically that there are some
assets or sectors which tend to lose steam from May through
October. Considering the current positive environment in the U.S.
and various economic data that further strengthens the optimistic
view on the economy, this may not turn out to be true this
season. However, as a caveat, the last two years saw these
assets/sectors largely underperforming the market.
With that being said, let us consider three ETFs that have
underperformed in the May-June period over the last two years. If
we follow the historical trend, these ETFs are best avoided even
if a broader bull continues:
iShares Silver Trust (
SLV is one of the most popular ways to speculate on the price
of silver. SLV after recording new highs in April 2011, headed
for a fall in May.
In fact, SLV which was once trading at an all-time high
plunged significantly by the end of Jun 2011. May 2012 also
repeated the trend with the ETF recording a loss of 10% (
Time to Buy Silver ETFs?
A look at the current trend in SLV very well signifies that
the ETF may repeat the same pattern in May 2013 as well. The ETF
is already off 13% this month and with prices of silver still
expected to go lower in the short term, no better performance can
be expected out of this ETF in May.
Launched in April 2006, this is the largest silver ETF with an
AUM of $7.9 billion. The fund seeks to match the spot price of
silver, net of fees and expenses and own silver bars to back the
It tracks almost 100% the physical price of silver bullion
measured in U.S. dollars, and kept in London under the custody of
JPMorgan Chase Bank N.A. Each share represents about an ounce of
silver at current prices.
The ETF is the most liquid and widely traded physically backed
silver offering in the precious metal space. The fund charges a
fee of 50 basis points annually.
iShares FTSE China 25 Index Fund (
Another ETF for which summers turn out to be cold is FXI. FXI
is the most popular way to tap the Chinese equity market. In the
past two years, the fund's performance has been disappointing for
Is It Time to Buy China ETFs?
Starting with a flat performance in May 2011, the fund finally
plunged to record a fall of 10% by mid July, while in May 2012,
the fund registered a loss of 12.8%.
May 2013 also does not seem to reverse the trend for this ETF.
The ETF has already recorded a loss of 3.7% this month and with
China GDP coming in lower than expected, the ETF is not expected
to put up a good show in May 2013 either.
FXI is both rich in asset base and volume. The fund manages an
asset base of $6.3 billion and trades at a volume level of more
than 12 million shares a day.
The ETF's exposure to Chinese stocks is limited to a small
basket of 26 stocks. It does not therefore have a broad exposure
to the country's securities. Also, the fund is biased towards the
top ten holdings as more than 60% of the asset base goes towards
Among individual holdings, China Construction Bank, China
Mobile and Industrial and Commercial Bank of China take the top
three positions. For investment in the fund, FXI charges a fee of
72 basis points from investors.
The summer months have not been great for these ETFs
historically, but that does not indicate that history will repeat
itself this time around. However, looking at the current scenario
of the commodity and Chinese markets, it is hard to argue with
this trend, suggesting that these two ETFs may struggle in
One way to benefit from these falling prices is to go long in
equivalent inverse ETFs.
ProShares UltraShort Silver (
ProShares UltraShort FTSE China 25 (
are the two ETFs which tend to exhibit good performance when
their unlevered forms are underperforming.
ZSL has already returned 37.5% in this month while FXP has
gained 6.8%. However, it is important to remember that these only
look to replicate short performances for a single session,
although they have been solid longer-term performers lately as
both of their respective markets have slumped (
4 Ways to Short Gold with ETFs
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ISHARS-FT CH25 (FXI): ETF Research Reports
PRO-ULS FT CH25 (FXP): ETF Research Reports
ISHARS-SLVR TR (SLV): ETF Research Reports
PRO-ULS SILVER (ZSL): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report