THE BEST ETFS OF 2020
As we approach the end of 2020 we thought we would take a look at The Best ETFs of 2020 and why they performed so well. Since the March sell-off, equities have bounced back with some indexes such as the Dow Jones Industrial Average and the S&P 500 even entering positive territory briefly. However volatility remains high as seen in the Chicago Board’s Options Exchange Volatility Index (VIX) which measures the 30 day forward market sentiment through options pricing on the S&P 500.
Investors seeking to hedge risks have turned to exchange traded funds (ETF), besides other instruments. Exchange traded funds (ETFs) have always been an attractive instrument due to their liquidity, low costs, and diversified portfolio. With the current market volatility, they are even more so.
The Beginnings of ETFs:
Back in 1993 when the SEC approved the launch of the first ETF, it was one of several outcomes of the 1987 stock market crash when the Dow Jones Industrial Average tanked by over 22% in a single day. Through these new instruments, investors were able to get the benefit of investing in a diversified basket of stocks such as the kind mutual funds offered while also getting the liquidity that comes from stock ownership.
Unlike mutual funds, however, ETFs could be traded during market hours but unlike stocks, they offered exposure to several companies in a single unit. ETFs are also plays on several asset classes such as equity, bonds, derivatives, and money markets.
For investors who sought to make their investment choices without the advice of a financial expert, ETFs offered a perfect solution: allowing them to participate in the growth while spreading their risks—all at a low cost.
By 2020, or in less than 3 decades, total assets under management for US ETFs was over $4 trillion and is expected to exceed $7 trillion by 2021.
ETFs have attracted increasing number of investors and particularly during market crashes such as the one in March. Various options such as index ETFs, sector ETFs, actively managed ETFS allow investors to customize their ETF portfolio. As the favoured instrument of the self-directed investor, some understanding of the sectors and asset classes is needed as we go about picking top performing ETFs and ETFs that seem to offer the greatest returns.
So what are the best performing ETFs of 2020 and why?
The ‘work from home’ and shelter-in-place’ mandates due to Covid-19 have spurred some industries such as e-commerce, cloud services, biotechnology, and data services even as they have hampered growth in others such as aviation, banking, and hospitality.
The top performing ETFs for 2020 capture this market trend and have considerable holdings in the industries that have rallied.
The best performing ETF so far in 2020 is the ProShares’ Long Online/Short Stores ETF (CLIX). The ETF has an expense ratio of 0.65%. With $236 million in assets under management, it focuses on the growth of online businesses that are replacing brick and mortar enterprises. Not surprisingly, with the lockdown, e-commerce and online services have boomed, taking this fund up 84% year to date. Its holdings include consumer cyclicals and Internet retail giants such as Amazon, Alibaba, and Ebay which make up 80% of its portfolio. The fund also holds a short position in a Brick and Mortar Retail Stores Index swap and tracks the ProShares Long Online/Short Retail Index.
IBUY (Amplify Online Retail ETF) also focuses on Internet Retail. With a matching expense ratio of 0.65% and $891.5 M assets under management, the ETF is up 79% year to date. It tracks the EQO Online Retail Index and seeks exposure to global companies in the sector with a 60% weighting in large cap, 21% in mid cap and 19% in small cap. Top holdings include online retailer Overstock, Stitch Fix Inc, online marketplace such as GrubHub, Etsy, and Paypal and online travel companies such as Expedia and Booking Holdings.
Actively managed Ark Next Generation Internet ETF (ARKW) is third with a 74% uptick for the year. With a slightly higher expense ratio of 0.76% and $2.4 billion in assets under management, its top holdings (amounting to 47% of the fund) include Tesla, Roku, Square, Zillow and Facebook.
Another ETF actively managed by Ark, Ark Genomic Revolution ETF ( ARKG) which focuses on health sciences has scored high as well at 68% year to date. With 0.75% expense ratio and $2.3 billion in assets under management, its top holdings, which account for 58% of the fund, include Invitae Corp, Crispr Therepeutics, Pacific Biosciences of California and Twist Biosciences Corp.
Investco’s Solar Portfolio ETF (TAN) is up 66% year to date and has $1.5 billion in assets under management. It is based on the MAC Global Solar Energy Index with top holdings in SolarEdge Technologies Inc, Enphase Energy Inc, Sunrun Inc, Xinyi Solar Holdings and First Solar Inc.
The ARK Innovation ETF (ARKK) comes close to TAN’s performance and is up 65% year to date. With $8.9 billion assets under management, its expense ratio is 0.75%. The fund seeks to invest in disruptive innovation and top holdings include Tesla, Invitae Corp, Square Inc, Roku and Crispr Therepeutics.
The Wisdom Tree Cloud Computing ETF (WCLD) is up 57% year to date. With $798 million assets under management and an expense ratio of 0.45%, its focuses on companies that provide cloud software and services. WCLD tracks the BVP Nasdaq Emerging Cloud Index. Its top holdings include Zoom Video Communications, Anaplan Inc, Crowdstrike Holdings, and Datadog Inc.
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The Invesco WilderHill Clean Energy Portfolio (PBW) is up 52% year to date. With $742 million in assets under management and an expense ratio of 0.70% it focuses on companies that use green technologies and clean energy. It tracks the Wilderhill Clean Energy Index and its top holdings include Lithium Americas Corp, Maxeon Solar Technologies, Sunrun, Neo Inc and SunPower Corp.
Invesco’s Healthcare Momentum ETF (PTH) comes 9th with a 49% uptick for the year. With $663 million in assets under management, its expense ratio is 0.60% and its top holdings include Amedisys Inc, Danaher Corp, Thermo Fisher Scientific Inc, Horizon Corp and West Pharmaceutical Services. The ETF tracks the Dynamic Healthcare Sector Intellidex Index.
Gold has done very well this year and gold ETFs have posted superior returns. The iShares MSCI Global Gold Miners ETF (RING) is up 47% year to date. With $533 million in assets under management and .66% in expense ratio, its top holdings include Newmont, Barrick Gold Corp, Wheaton Precious Metals Corp, Agnico Eagle Mines Ltd and Kinross Gold Corp. The fund tracks the performance of an index comprising companies engaged in gold mining.
Finally the year has been great for silver as well and the Global X Silver Miners ETF (SIL) is up 49%. The fund seeks to match the yield and price, before fees and expenses, of the Solactive Global Silver Miners Total Returns Index. With $1 billion in assets under management and an expense ratio of 0.66%, its top holdings are Wheaton Precious Metals Corp, Polymetal, Pan American Silver Corp, Hecla Mining Co and Fresnilla PLC.
ETFs are great ways to diversify and benefit from growth. As their performance in 2020 shows, the breadth of exposure they offer helps investors get in on several growth stories without expensive brokerage fees or excessive concentration in a single position.