Equity ETFs post third straight year of plus-side returns
Unexpectedly good U.S. economic news and fresh actions by central banks pushed local indexes to new records in the fourth quarter.
In the fall, cautious investors were bombarded with mixed news, ranging from continued eurozone weakness and new cases of Ebola in the U.S., to a major slump in oil prices. But better-than-expected U.S. economic news and fresh interventions by global central banks in the fourth quarter pushed local indexes to new records, albeit at the margins.
For fourth-quarter 2014, equity ETFs posted their ninth quarter in 10 of plus-side returns, with the average equity exchange-traded fund’s three-month return at just 0.01% as investors embraced reports that the U.S. economy had outpaced growth in most other developed nations and thus shied away from global markets.
Investors began selectively focusing on interest-related, out-of-favor and relatively safer domestic equity issues. Investors were kept in the game by reports that the Chinese and European central banks were laying the groundwork for quantitative easing and asset purchases, strong U.S. employment statistics and the Fed’s commitment to be “patient” before raising interest rates. In 2014, the average equity ETF (+3.11%) was in positive territory for the third consecutive year, although the average was pulled down by Lipper’s world equity ETFs macroclassification (-2.46%).
Equity ETFs ranked by quarterly returns
Name/ticker | 3-month return | 1-year return | Net assets ($M) | Expense ratio* | 3-month average daily volume |
---|---|---|---|---|---|
PowerShares China A-Share Portfolio (CHNA) | 59.88% | 62.15% | $23.2 | 0.51% | 14,514 |
Deutsche X-trackers Hvst CSI 300 China A-Shs ETF (ASHR) | 42.10% | 49.70% | $962.9 | 0.80% | 920,456 |
Market Vectors ChinaAMC A-Share ETF (PEK) | 41.64% | 49.10% | $94.4 | 0.72% | 83,814 |
KraneShares Bosera MSCI China A Share ETF (KBA) | 35.31% | N/A | $23.4 | 0.85% | 18,453 |
Global X China Financials ETF (CHIX) | 24.46% | 18.81% | $60.7 | 0.65% | 6,040 |
Deutsche X-trackers Hvst MSCI All China Equity ETF (CN) | 21.88% | N/A | $6.9 | 0.70% | 3,158 |
SPDR S&P Biotech ETF (XBI) | 19.96% | 44.67% | $1,453.9 | 0.35% | 503,673 |
PowerShares S&P SmallCap Utilities Port (PSCU) | 18.84% | 16.57% | $41.7 | 0.29% | 3,949 |
SPDR S&P Health Care Equipment ETF (XHE) | 18.26% | 16.26% | $39.2 | 0.35% | 609 |
PowerShares Dynamic Retail Portfolio (PMR) | 18.12% | 12.25% | $23.3 | 0.63% | 11,545 |
Teucrium Wheat Fund (WEAT) | 17.67% | -14.26% | $22.3 | 3.67% | 13,961 |
SPDR S&P Transportation ETF Trust (XTN) | 16.83% | 33.78% | $580.1 | 0.35% | 23,408 |
Teucrium Corn Fund (CORN) | 16.73% | -13.15% | $108.5 | 2.68% | 37,982 |
iShares Residential Real Estate Capped ETF (REZ) | 16.09% | 35.03% | $285.6 | 0.48% | 31,868 |
iShares Cohen & Steers REIT ETF (ICF) | 15.86% | 34.07% | $3,395.2 | 0.35% | 318,131 |
Market Vectors Retail ETF (RTH) | 15.61% | 18.30% | $170.0 | 0.35% | 75,617 |
SPDR S&P Homebuilders ETF (XHB) | 15.50% | 3.16% | $1,414.6 | 0.35% | 3,846,956 |
iShares U.S. Home Construction ETF (ITB) | 15.33% | 4.68% | $1,531.7 | 0.45% | 3,439,907 |
PowerShares S&P SmallCap Cnsmr Discretionary Port (PSCD) | 15.33% | 4.66% | $94.0 | 0.29% | 17,907 |
Schwab US REIT ETF (SCHH) | 15.05% | 31.93% | $1,220.8 | 0.07% | 58,322 |
Guggenheim Invest Wilshire US REIT ETF (WREI) | 15.00% | 31.34% | $18.2 | 0.32% | 204 |
SPDR Dow Jones REIT ETF (RWR) | 15.00% | 31.66% | $3,045.2 | 0.25% | 235,230 |
PowerShares KBW Premium Yield Equity REIT Port (KBWY) | 14.67% | 23.80% | $118.8 | 0.35% | 3,836 |
Vanguard REIT Index Fund;ETF (VNQ) | 14.29% | 30.29% | $27,096.5 | 0.10% | 3,826,067 |
PowerShares Active US Real Estate Fund (PSR) | 14.26% | 30.10% | $47.4 | 0.80% | 2,542 |
First Trust S&P REIT Index Fund (FRI) | 14.17% | 29.59% | $339.1 | 0.50% | 189,186 |
Global X China Industrials ETF (CHII) | 14.12% | 15.42% | $6.3 | 0.65% | 2,757 |
iShares U.S. Medical Devices ETF (IHI) | 14.06% | 22.64% | $887.9 | 0.45% | 96,724 |
iShares U.S. Utilities ETF (IDU) | 13.39% | 27.44% | $1,906.2 | 0.45% | 343,152 |
PowerShares S&P SmallCap Low Volatility Portfolio (XSLV) | 13.29% | 10.81% | $58.7 | 0.34% | 24,226 |
Utilities Select Sector SPDR Fund (XLU) | 13.10% | 28.65% | $7,480.1 | 0.16% | 14,076,368 |
iShares North America Real Estate ETF (IFNA) | 13.08% | 27.43% | $23.0 | 0.48% | 2,809 |
Vanguard Utilities Index Fund;ETF (VPU) | 13.06% | 26.92% | $2,076.8 | 0.12% | 187,389 |
Fidelity MSCI Utilities Index ETF (FUTY) | 13.05% | 26.84% | $196.8 | 0.12% | 151,104 |
PowerShares S&P SmallCap Financials Port (PSCF) | 13.04% | 7.99% | $116.7 | 0.50% | 8,037 |
IQ US Real Estate Small Cap ETF (ROOF) | 12.82% | 20.70% | $81.1 | 0.69% | 4,664 |
SPDR Russell 2000 Low Volatility ETF (SMLV) | 12.56% | 12.58% | $15.5 | 0.25% | 4,596 |
SPDR S&P Retail ETF (XRT) | 12.43% | 9.92% | $1,584.6 | 0.35% | 2,672,385 |
PowerShares S&P SmallCap Information Tech Port (PSCT) | 12.30% | 12.96% | $258.4 | 0.29% | 27,809 |
iShares Real Estate 50 ETF (FTY) | 12.13% | 28.16% | $82.1 | 0.48% | 9,004 |
As of Dec. 31. Excludes leveraged and inverse funds, and exchange-traded notes. *Most recently reported net prospectus expense ratio. N/A=Not available
Source: Lipper, a Thomson Reuters company
(More: BlackRock attracts record flow in 4Q amid ETF demand, Pimco turmoil)
In December, investors witnessed increased market volatility. After initially cheering a surprisingly strong November jobs report (the U.S. economy added 321,000 jobs that month — the biggest gain since early 2012 and beating consensus estimates by 86,000) and a 0.4% rise in hourly wages, investors began to fear the Federal Reserve would raise interest rates faster than expected. In addition, the Commerce Department had reported in October that factory orders were on the decline.
The U.S. markets experienced a sharp pullback in mid-December, when the International Energy Agency again cut its global crude oil demand forecast. That led to concerns the global economy might succumb to deflation, which could lead to a global recession or even depression.
During the week ended Dec. 12, the S&P 500 took one of its largest one-week losses since September 2011, falling 3.5% over the week. Investors shrugged off the consensus-beating University of Michigan/Thomson Reuters consumer-sentiment readings, focusing instead on the decline in December wholesale prices. That played on concerns the U.S. economy’s growth rate might be unsustainable.
Newly-launched equity ETFs, ranked by average daily volume during Q4 2014
Name/ticker | Classification | 3-month average daily volume | Expense ratio* |
---|---|---|---|
First Trust Eurozone AlphaDEX ETF (FEUZ) | European Region | 404,306 | 0.80% |
PureFunds ISE Cyber Security ETF (HACK) | Science & Technology | 215,352 | 0.75% |
SPDR MSCI ACWI Low Carbon Target ETF (LOWC) | Energy MLP | 51,433 | 0.20% |
Reality Shares DIVS ETF (DIVY) | Global Equity Income | 44,056 | 0.85% |
KraneShares E Fund China Commercial Paper ETF (KCNY) | China Region | 42,481 | 0.56% |
ETFis BioShares Biotechnology Clinical Trials Fund (BBC) | Health/Biotechnology | 40,542 | 0.85% |
Cambria Global Momentum ETF (GMOM) | Global Multi-Cap Core | 35,252 | 0.94% |
Validea Market Legends ETF (VALX) | Mid-Cap Growth | 27,050 | 0.79% |
ValueShares US Quantitative Value ETF (QVAL) | Multi-Cap Value | 26,502 | 0.79% |
Market Vectors ChinaAMC China Bond ETF (CBON) | China Region | 23,975 | 0.50% |
Cambria Global Asset Allocation ETF (GAA) | Flexible Portfolio | 18,216 | 0.29% |
ProShares Morningstar Alternatives Solution ETF (ALTS) | Absolute Return | 15,213 | 0.95% |
Global X JPMorgan US Sector Rotator Index ETF (SCTO) | Specialty/Miscellaneous | 12,586 | 0.86% |
EMQQ The Emerging Markets Internet & Ecommerce ETF (EMQQ) | Science & Technology | 11,883 | 0.86% |
Arrow DWA Tactical ETF (DWAT) | Flexible Portfolio | 11,599 | 1.52% |
As of Dec. 31. Excludes leveraged and inverse funds, and exchange-traded notes. *Most recently reported net prospectus expense ratio.
Source: Lipper, a Thomson Reuters company
Despite the late-month collapse of the ruble, the wild fluctuations in oil prices and an unexpectedly hawkish statement by the Federal Open Market Committee, the equity market rallied in relief that the Fed was not being even more hawkish. In a Santa Claus-like rally, investors pushed the Dow Jones Industrial Average and the S&P 500 to their 38th and 52nd record closes of the year, respectively, during the Christmas-shortened trading week.
The Dow closed above the 18,000 mark for the first time. The U.S. stock market closed the good year on a down note, however, with the Dow witnessing a triple-digit loss on the last trading day of the year and chalking up its first monthly loss (-0.03%) in three.
ETF investors (authorized participants, or APs) were net purchasers for the quarter, injecting $88.6 billion into equity ETFs while being net purchasers of taxable fixed-income ETFs (+$19.5 billion) and municipal debt ETFs (+$1 billion).
Equity ETFs with the largest inflows
Name/ticker | 3-month estimated net flows ($M) | 3-month return | 1-year return | Net assets ($M) | Expense ratio* |
---|---|---|---|---|---|
SPDR S&P 500 ETF Trust (SPY) | $27,734.1 | 4.90% | 13.53% | $215,908.5 | 0.10% |
iShares Core S&P 500 ETF (IVV) | $5,418.7 | 4.92% | 13.62% | $69,686.3 | 0.07% |
Vanguard 500 Index Fund ETF (VOO) | $4,671.9 | 4.91% | 13.63% | $27,629.7 | 0.05% |
iShares Russell 2000 ETF (IWM) | $3,872.9 | 9.75% | 4.94% | $30,289.0 | 0.20% |
Energy Select Sector SPDR Fund (XLE) | $2,967.8 | -12.08% | -8.61% | $11,895.9 | 0.16% |
Vanguard Total Stock Market Index Fund ETF (VTI) | $2,693.1 | 5.23% | 12.56% | $50,885.9 | 0.05% |
WisdomTree Europe Hedged Equity Fund (HEDJ) | $2,678.1 | 0.91% | 6.55% | $5,625.3 | 0.58% |
Consumer Discretionary Select Sector SPDR Fund (XLY) | $2,365.9 | 8.67% | 9.49% | $9,646.6 | 0.16% |
Vanguard FTSE Developed Markets ETF (VEA) | $2,111.5 | -4.14% | -5.71% | $24,155.3 | 0.09% |
Consumer Staples Select Sector SPDR Fund (XLP) | $1,686.7 | 8.33% | 15.86% | $9,962.6 | 0.16% |
iShares Russell 1000 Growth ETF (IWF) | $1,661.1 | 4.74% | 12.84% | $27,769.2 | 0.20% |
iShares MSCI EAFE ETF (EFA) | $1,647.2 | -3.63% | -5.04% | $53,221.3 | 0.33% |
iShares Russell 1000 Value ETF (IWD) | $1,347.9 | 4.92% | 13.21% | $25,973.4 | 0.20% |
Financial Select Sector SPDR Fund (XLF) | $1,262.1 | 7.19% | 15.02% | $21,241.8 | 0.16% |
Utilities Select Sector SPDR Fund (XLU) | $1,202.9 | 13.10% | 28.65% | $7,480.1 | 0.16% |
iShares US Financials ETF (IYF) | $1,153.1 | 8.13% | 14.11% | $2,556.0 | 0.45% |
iShares US Utilities ETF (IDU) | $1,144.9 | 13.39% | 27.44% | $1,906.2 | 0.45% |
iShares S&P 500 Growth ETF (IVW) | $1,114.0 | 5.01% | 14.67% | $12,230.4 | 0.18% |
United States Oil Fund LP (USO) | $1,095.3 | -41.26% | -42.80% | $1,275.7 | 0.76% |
Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF) | $1,087.5 | 1.49% | 5.26% | $1,752.7 | 0.35% |
As of Dec. 31. Excludes leveraged and inverse funds, and exchange-traded notes. *Most recently reported net prospectus expense ratio.
Source: Lipper, a Thomson Reuters company
Similar to third-quarter 2014, when APs favored domestic (+$17.3 billion) over nondomestic (+$11.7 billion) issues, they injected $85.6 billion into domestic equity ETFs in the fourth quarter, versus only $3 billion for nondomestic. Despite the relatively strong returns by China region ETFs (+10.10%), APs shunned emerging market ETFs (-$2 billion) and European region ETFs (-$5.3 billion) on fears of a decline in global growth. They focused on the perceived safety of large domestic, out-of-favor and interest-paying issues, with large-cap ETFs attracting $53.0 billion.
The four top-performing individual equity ETFs in the fourth quarter were housed in Lipper’s China region ETFs classification. At the top of the charts was PowerShares China A-Share Portfolio (CHNA), returning an eye-popping 59.88%. Following that were Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR), posting a 42.10% return; Market Vectors ChinaAMC A-Share ETF (PEK), 41.64%; and KraneShares Bosera MSCI China A Share ETF (KBA), 35.31%.
Still, the China region ETFs classification was not the top performer of the equity universe in the final quarter of the year. That claim went to real estate ETFs, which gained 12.94%, followed closely by health/biotechnology’s rise of 10.36%.
For the first quarter in four, Lipper’s U.S. diversified equity ETFs macroclassification (+5.13%) jumped to the top of the leader board, outpacing the other three broad equity groupings: mixed-asset ETFs (+0.62%) took the runner-up position, followed by sector equity ETFs (-2.41%) and world equity ETFs (-3.79%). While world equity posted the worst macroclassification performance in the fourth quarter, natural resources and commodity-related ETF classifications posted the poorest returns in the equity ETF universe.
Equity ETFs with the largest outflows
Name/ticker | 3-month estimated net flows ($M) | 3-month return | 1-year return | Net assets ($M) | Expense ratio* |
---|---|---|---|---|---|
iShares MSCI Emerging Markets ETF (EEM) | -$5,413.2 | -4.60% | -2.82% | $32,187.6 | 0.67% |
PowerShares QQQ Trust Series 1 (QQQ) | -$4,125.2 | 4.85% | 19.12% | $40,449.2 | 0.20% |
Vanguard FTSE Europe ETF (VGK) | -$2,308.7 | -4.55% | -6.56% | $11,204.9 | 0.12% |
SPDR Gold Shares (GLD) | -$2,286.9 | -1.52% | -0.58% | $27,324.6 | 0.40% |
Materials Select Sector SPDR Fund (XLB) | -$2,187.4 | -1.39% | 7.31% | $2,848.5 | 0.16% |
Technology Select Sector SPDR Fund (XLK) | -$976.2 | 4.16% | 17.75% | $13,394.5 | 0.16% |
iShares U.S. Healthcare ETF (IYH) | -$970.6 | 7.76% | 25.18% | $1,867.9 | 0.45% |
iShares U.S. Industrials ETF (IYJ) | -$937.7 | 6.01% | 6.86% | $890.2 | 0.45% |
iShares MSCI United Kingdom ETF (EWU) | -$929.9 | -4.36% | -5.86% | $2,984.1 | 0.51% |
SPDR EURO STOXX 50 ETF (FEZ) | -$796.0 | -6.16% | -8.37% | $3,902.7 | 0.29% |
WisdomTree Emerging Markets Equity Income Fund (DEM) | -$737.7 | -9.97% | -11.59% | $2,391.0 | 0.63% |
First Trust Industrials/Producer Drbls AlphaDEX Fd (FXR) | -$667.0 | 3.86% | 8.10% | $586.8 | 0.67% |
iShares MSCI Canada ETF (EWC) | -$624.2 | -4.84% | 1.36% | $2,719.3 | 0.51% |
iShares MSCI Spain Capped ETF (EWP) | -$602.6 | -7.96% | -4.69% | $1,587.7 | 0.51% |
iShares MSCI EMU ETF (EZU) | -$596.9 | -4.49% | -8.50% | $7,518.9 | 0.50% |
iShares Core S&P Mid-Cap ETF (IJH) | -$571.2 | 6.33% | 9.64% | $24,198.6 | 0.14% |
First Trust Materials AlphaDEX Fund (FXZ) | -$463.5 | -0.91% | -0.99% | $198.7 | 0.70% |
iShares MSCI Pacific ex Japan ETF (EPP) | -$445.5 | -1.66% | -0.86% | $2,649.4 | 0.50% |
iShares MSCI Italy Capped ETF (EWI) | -$406.2 | -12.66% | -9.83% | $838.3 | 0.50% |
iShares MSCI Mexico Capped ETF (EWW) | -$391.5 | -12.30% | -10.14% | $2,297.5 | 0.50% |
As of Dec. 31. Excludes leveraged and inverse funds, and exchange-traded notes. *Most recently reported net prospectus expense ratio.
Source: Lipper, a Thomson Reuters company
With the U.S. dollar on its recent tear, and the oversupply of oil and lower demand making headlines, it was little wonder that dollar-priced commodities were pummeled during the quarter. Commodities energy ETFs lost 29.93% and became the basement dweller. The classification housed the four worst-performing individual ETFs. Natural resources, which fell 17.09%, and commodities general funds, down 16.03%, were the next-poorest-performing classifications.
At the bottom of the equity ETF universe was PowerShares DB Oil Fund (DBO), declining 42.62%. It was bettered marginally by United States Oil Fund LP [USO, -41.26%), United States Brent Oil Fund LP (BNO, -40.64%) and United States Gasoline Fund LP (UGA, -37.69%).
One-year anniversary equity ETFs
Name/ticker | 3-month average daily volume | 3-month return | 1-year return | Net assets ($M) | Expense ratio* |
---|---|---|---|---|---|
Deutsche X-trackers Hvst CSI 300 China A-Shs ETF (ASHR) | 920,456 | 42.10% | 49.70% | $962.9 | 0.80% |
Deutsche X-trackers MSCI Europe Hedged Equity ETF (DBEU) | 446,164 | -0.11% | 4.45% | $714.1 | 0.45% |
Fidelity MSCI Financials Index ETF (FNCL) | 248,867 | 7.75% | 13.37% | $301.2 | 0.16% |
Fidelity MSCI Energy Index ETF (FENY) | 241,943 | -12.98% | -10.14% | $187.1 | 0.12% |
Fidelity MSCI Health Care Index ETF (FHLC) | 218,648 | 8.39% | 25.23% | $404.4 | 0.12% |
Fidelity MSCI Consumer Discretionary Index ETF (FDIS) | 217,658 | 9.00% | 9.29% | $229.1 | 0.12% |
Fidelity MSCI Information Technology Index ETF (FTEC) | 156,906 | 5.65% | 18.16% | $318.0 | 0.12% |
Fidelity MSCI Utilities Index ETF (FUTY) | 151,104 | 13.05% | 26.84% | $196.8 | 0.12% |
Fidelity MSCI Materials Index ETF (FMAT) | 142,040 | -0.73% | 5.75% | $107.3 | 0.12% |
ProShares S&P 500 Dividend Aristocrats ETF (NOBL) | 129,283 | 8.63% | 15.38% | $510.6 | 0.35% |
Fidelity MSCI Industrials Index ETF (FIDU) | 126,881 | 5.88% | 6.06% | $140.9 | 0.12% |
Fidelity MSCI Consumer Staples Index ETF (FSTA) | 102,643 | 8.34% | 15.76% | $175.2 | 0.12% |
First Trust Global Tactical Commodity Strategy (FTGC) | 94,246 | -10.29% | -11.86% | $175.9 | 0.95% |
Vident International Equity Fund (VIDI) | 83,981 | -4.16% | -2.16% | $696.5 | 0.75% |
Global X FTSE Portugal 20 ETF (PGAL) | 56,393 | -22.97% | -31.49% | $26.2 | 0.61% |
As of Dec. 31. Excludes leveraged and inverse funds, and exchange-traded notes. *Most recently reported net prospectus expense ratio.
Source: Lipper, a Thomson Reuters company
Tom Roseen is head of research services at Lipper Inc.
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