Gone are the days of plain vanilla or market-cap weighted ETFs. Issuers are focusing more on active and smart-beta ETFs to make their products suitable for the changing macroeconomic dynamics. ETFGI reported that global smart Beta Equity ETF/ETP assets rose 35.1% to $835 billion this year till November, at a 5-year CAGR of 19.9%. The month marked the 46th successive month of net inflows into Smart Beta Equity ETFs/ETPs.
As the name suggests, this approach calls for a strategic take on portfolio construction rather than a market-cap oriented method. The approach helps exploit market anomalies by incorporating additional selection criteria to the market cap or rules-based indices. This enables them to generate market-beating returns. Many people call this an enhanced investing strategy.
Overall, 2019 has been upbeat for stocks with SPDR S&P 500 ETF SPY gaining about 29.2% so far, SPDR Dow Jones Industrial Average ETF DIA advancing about 22.8% and the tech-heavy Invesco QQQ Trust QQQ adding 38.5% (as of Dec 27, 2019).
U.S.-China trade optimism, a dovish Fed, easing of Brexit uncertainty and dissipating global growth worries have aided the broader market, especially in the fourth quarter. Against this backdrop, investors may be interested in knowing which smart-beta ETFs managed to beat the broader market by a wide margin.
Virtus LifeSci Biotech Clinical Trials ETF BBC — Up 65.9%
The underlying LifeSci Biotechnology Clinical Trials Index is equal weighted and is designed to measure the equity market performance of the common stock of U.S. exchange-listed biotechnology companies with a primary product offering that is in a Phase 1, Phase 2 or Phase 3 clinical trial stage of development.
Mergers and acquisitions, especially in the hot cancer treatment space, positive drug data, FDA approvals, upbeat financials and decent valuations made the biotech space a clear winner this year (read: Biotech Rally Sends Nasdaq to 9000: ETFs in Focus).
First Trust Nasdaq Semiconductor ETF FTXL — Up 61.2%
The underlying Nasdaq US Smart Semiconductor Index is a modified factor weighted index, designed to provide exposure to domestic companies within the semiconductor industry.
This sector is one of the best beneficiaries of the announcement of the phase-one U.S.-China trade deal. Apart from the trade deal, a 5G boom and rising consumer spending on technology have propelled the sector. Expectations of higher smartphone sales have given an added boost (read: 4 Sector ETFs That Beat the Market in Q4).
US Global GO GOLD and Precious Metal Miners ETF GOAU — Up 50.7%
The underlying U.S. Global Go Gold and Precious Metal Miners Index consists of the common stock or ADRs of Precious Metals Companies across the globe that earn at least 50% of their aggregate revenues from precious metals through mining or production; or owning royalties or production streams.
The past six months have been stellar for precious metal. While silver prices rose about 18% in that timeframe gold prices gained about 8.6%, in line with the S&P 500. Return of risk-on sentiments boosted the industrial metal silver materially while a subdued greenback gave support to the gold prices. On the other hand, palladium prices went through roof on rising demand from the auto industry. Since mining companies act as leveraged plays of the underlying metals, this mining ETF has soared this year.
Defiance Quantum ETF QTUM — Up 47.4%
The underlying BlueStar Quantum Computing and Machine Learning Index consists of a modified equal-weighted portfolio of the stock of companies whose products or services are predominantly tied to the development of quantum computing and machine learning technology.
In March, IDC projected that global outlays on artificial intelligence will jump to about $35.8 billion in 2019, suggesting a 44% surge from the year-ago figure. This favorable data indicates that the upbeat prospect lie with quantum computing and machine learning.
Invesco DWA NASDAQ Momentum ETF DWAQ) — Up 47.1%
The underlying Dorsey Wright NASDAQ Technical Leaders Index is chosen from a universe of approximately 1,000 common stocks having the largest market capitalizations and traded on the NASDAQ exchange.
Optimism has been sweeping the broader market since mid-October, when the United States and China announced the phase-one trade deal. The S&P 500 and the Nasdaq have hit several highs in this process.And as soon as the Santa rally kicked in, the tech-heavy Nasdaq index hit the 9000-mark on Dec 26, backed by Amazon AMZN and Apple AAPL. The Nasdaq index marked “its longest winning streak since 2009 (read: Nasdaq Hits 9,000 for the First Time: ETFs to Benefit).”
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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.
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