3 Non-Leveraged ETFs Beating SPY - ETF News And Commentary


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Despite a weak start to the year, the U.S. market showed strong resilience to the ongoing volatility and once again hit multi-year highs. The S&P 500 broke the 1,900 mark for the first time while Dow Jones jumped close to 16,700 early this week (read: 3 ETFs Hitting All-time Highs in Rocky Market ).

Most of the gains were driven by a rebound in the momentum stocks, which have seen a wild ride over the past couple of months on high valuation concerns, as well as improving economic conditions after a bad weather took a toll on economic growth early in the year. Further, a low interest rate environment, increased merger & acquisition (M&A) activities and hopes of a strong new government in India added to the optimism.

These positive factors strongly offset the negative impact from the growing geopolitical tensions in Russia and signs of slowdown in China. Moreover, with Q1 earnings in its final stretch, expectations for Q2 are not as bad as before. Total earnings for Q2 are expected to be up 3.7%, as per the Earnings Trends . Though this is down from 5.5% a month ago, it is more than double the growth seen in the same period a year ago. The favorable earnings estimate revision is also fueling bullishness into the stock market.

Though there have been winners in every corner of the space, several ETFs have easily crushed the broad market fund ( SPY ) by wide margins, in the year-to-date period. Below, we have highlighted three ETFs that have been the star performers so far this year and led the market higher (see: all the Categories ETF here ).

Market Vectors Pharmaceutical ETF ( PPH )

Pharmaceutical stocks have shown an impressive turnaround from the patent cliffs that have affected their performance over the last several years and became the darlings of the financial stock market this year. These are riding higher on the wave of M&A talks, promising new drugs and their approvals, increased pipeline visibility, aging population and expansion into emerging markets.

The top performer in this corner of the broad healthcare space is the large cap centric fund -PPH. This product is less popular and less liquid with AUM of $300.8 million and average daily volume of less than 79,000 shares. It tracks the Market Vectors US Listed Pharmaceutical 25 Index and charges 35 bps in fees and expenses.

In total, the fund holds 26 stocks in its basket that is guilty of concentration on the top 10 holdings at 60.55%. Though PPH currently has a Zacks ETF Rank of 4 or 'Sell' rating with Medium risk outlook, it has added more than 13% in the year-to-date time frame (read: Pharma M&A Frenzy Pushing These ETFs Higher ).

Guggenheim S&P 500 Equal Weight Utilities ETF ( RYU )

Utilities have performed exceptionally well in the current market turmoil thanks to investors shift from riskier assets to defensive ones and their drive for higher income. The utility stocks pay outsized yields to investors and often act as a safe haven in the market turmoil. The sector is also benefiting from an ever-expanding population, which would fuel demand for essential utility supplies like water, gas and electricity. In addition, lower interest rates in spite of the Fed tapering of stimulus are fueling growth in the sector.  

Though most of the utility ETFs are surging, RYU is leading the sector with returns of over 13% this year. This ETF provides exposure to 35 utilities stocks with equal weight methodology by tracking the S&P 500 Equal Weight Index Utilities (read: 3 Utility ETFs Surviving the Market Turmoil ).

Multi utilities and electric utilities make up for the top two sectors at 38.06% and 37.24%, respectively, while diversified telecom services also receive double-digit allocation. The fund has amassed $91.8 million in its asset base while trades in paltry volume of just 10,000 shares a day. Expense ratio came in at 0.40%. The ETF has a Zacks ETF Rank of 5 or 'Strong Sell' rating with Medium risk outlook.

First Trust ISE-Revere Natural Gas Index Fund ( FCG )

Rise in natural gas prices came from the coldest winter in decades that sent heating demand (and thus natural gas usage) soaring. Additionally, increased concerns that the energy companies might not be able to rebuild depleted natural gas inventory to levels high enough to meet demand next winter are fueling a rally in the prices.

As a result, FCG, which offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas, has been surging. The product has gained 12.4% so far this year and tracks the ISE-REVERE Natural Gas Index (read: Is It Finally Time to Buy the Natural Gas Equity ETF? ).

Holding 30 stocks in its basket, the fund is slightly tilted toward the top two firms - Goodrich Petroleum and Comstock Resources - that make up for a combined 10% of assets. Other securities hold less than 4% share. The fund is rich with AUM of $539 million and average daily volume of nearly 490,000 shares per day. It charges 60 bps in fees per year from investors and has a Zacks ETF Rank of 3 or 'Hold' rating with High risk outlook.

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FT-ISE R NAT GA (FCG): ETF Research Reports

MKT VEC-PHARMA (PPH): ETF Research Reports

GUGG-SP5 EW UTL (RYU): ETF Research Reports

SPDR-SP 500 TR (SPY): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs
More Headlines for: FCG , PPH , RYU , SPY

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