Investors poured more than $200 billion into U.S.-listed ETFs in the first five months of the year, bringing total U.S. ETF assets to almost $3 trillion. The most popular fund this year, the iShares Core S&P 500 ETF (IVV), attracted some $14 billion in net inflows.
But the top 10 best-performing ETFs this year command only about $1.42 billion in total combined assets. Their net creations between January and May 2017 reached only $458.5 million split across 10 different funds.
Behind these funds’ impressive performances so far this year are a few different story lines: historically low volatility in the U.S. stock market; a mind-boggling rally in bitcoin prices; a forging recovery in emerging markets; and across-the-board strength in the tech sector.
Leading with gains of more than 53% in five months is a complex volatility ETN (exchange-traded note), the VelocityShares VIX Short Volatility Hedged ETN (XIVH). The strategy—which includes both a large short exposure to near-term VIX futures and a small long and leveraged position—is built to benefit from contango in CBOE Volatility Index (VIX) futures. In other words, it gains most when the VIX is going down.
By the end of May, VIX was trading just below 10—far off its 52-week high of 26.7, according to CBOE data, and it’s been below 10 at close of trading several times in the month of May alone. Volatility has been declining, making it the perfect setting for XIVH to flourish.
A big story this year that is fueling a pair of ETFs has been bitcoin.
The Securities and Exchange Commission decision earlier this year to deny permission for bitcoin ETFs to come to market only helped further fuel the bitcoin space. In the first five months of the year, bitcoin prices surged nearly 150%.
Those bitcoin gains are largely the reason two very small ARK Invest funds are among the top-performing ETFs of the year. Bitcoin—owned through allocations to the Grayscale Bitcoin Trust (GBTC)—is the ARK Innovation ETF (ARKK) and the ARK Web x.0 ETF (ARKW)’s biggest single holding, at about 8% and 8.2%, respectively.
Both funds also own names like Tesla, Amazon and Athena Health—all companies that have been delivering strong returns this year. These ETFs are actively managed funds.
Emerging Markets Surging
Six of the 10 best performers are all linked to emerging markets. The region is coming off of four years of underperformance relative to developed-market equities, forging a bottom and gaining some ground. A weaker U.S. dollar, too, has helped in recent months, as have lower, attractive valuations relative to developed-market equities.
Leading the bunch, with gains of roughly 41%, is the Emerging Markets Internet & Ecommerce ETF (EMQQ), which owns internet-related companies in almost 20 countries. The ETF is one of the year’s best tech funds, too, thanks to its sharp focus on the internet of things.
Drew Voros can be reached at firstname.lastname@example.org.
More On ETF.com
Be Wary Of This Skyrocketing Bitcoin Fund
Evaluating Sustainability ETFs With MSCI
Muni ETFs: No Summer Vacation
Int’l Equity ETFs Fuel Record Year