It has been duly noted that ETF trading and investing is a
numbers game. To that end, many experts treat this numbers game
the way they would drafting a fantasy football league. That is to
say
certain numbers become etched in stone
as criteria for judging an ETF's value.
While it is advisable to draft a quarterback for one's fantasy
football team that threw for more than 4,000 yards in the prior
season, things are not that cut and dry when it comes to ETFs. In
fact, it is fairly easy to find plenty of ETFs that are "plagued"
by low assets and/or low average daily volume
that are delivering in terms of returns
.
A list of the top-10 performing non-leveraged equity ETFs
year-to-date
compiled by Index Universe
shows that there is little to no correlation between what experts
have deemed "good" volume and what most investors would view as
strong returns.
The Index Universe list features data through September 27 and
as of that date, the Market Vectors Egypt ETF (NYSE:
EGPT
) was the leader with a year-to-date surge of 66 percent. EGPT's
three-month trailing ADV is less than 71,600 shares and that
number is up soared in September as EGPT was rallying. Said
differently, just five or six weeks ago, EGPT's volume was not
even as high as it is now, but below 100,000 shares per day, many
experts would not even touch the ETF.
Cleary, that has proven to be a mistake as
EGPT stands as a shining example
of low AUM/low ADV ETF's ability to deliver stellar returns for
investors.
The ETF's in the second and fourth spots on the list are the
heavily traded iShares Dow Jones US Home Construction Index Fund
(NYSE:
ITB
) and the rival SPDR S&P Homebuilders ETF (NYSE:
XHB
). Sandwiched in between in those two is the Market Vectors
Biotech ETF (NYSE:
BBH
).
Traders and investors not living in caves know that 2012 has
been an excellent year for biotech stocks and ETFs. In fact, four
of the 10 ETFs on the Index Universe list are biotech funds. What
is interesting is the order in which those ETFs fall. With ADV of
barely over 28,000 shares, BBH is the third-best performing
traditional long ETF of any kind this year and tops among the
biotech funds.
Number five on the list is the not anonymous,
though still lightly traded First Trust NYSE Arca
Biotech Index Fund (NYSE:
FBT
). FBT has ADV of just over 50,000 shares per day.
Bottom line: BBH and FBT have trumped more voluminous rivals
suhc as the SPDR S&P Biotech ETF (NYSE:
XBI
) and the iShares Nasdaq Biotecnology Index Fund (NYSE:
IBB
). XBI and IBB occupy the seventh and ninth spots on the Index
Universe list.
In the tenth spot is the iShares FTSE EPRA/NAREIT Developed
Asia Index Fund (NYSE:
IFAS
), which had returned 32 percent through September 27. IFAS,
which is dominated by weights to Hong Kong, Japan and Australia,
has just $28.4 million in AUM and ADV barely over 6,900
shares.
Keeping with the Asian real estate theme, the Guggeneheim
China real estate ETF (NYSE:
TAO
) is in the number eight spot on the Index Universe list. TAO
sees average turnover of about 23,500 shares per day. Apparently
that is enough for the fund to have gained 35 percent
year-to-date.
Arguably, what is noteworthy is not that this new list is
surprising. It is not, but it does fortify
data from other sources
released earlier this year indicating low volume ETFs are not so
bad. What is noteworthy and problematic is that so many
investors, professionals included, are using volume as a
determinng factor in evaluating an ETF's potential to deliver
alpha in the future.
For more on ETF volume, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.