Circus Sideshow ETFs

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Circus Sideshow ETFs

US exchange traded funds get a ton of grief in some circles. They “steal” assets from active managers. They crowd investors into too many similar investment strategies. One investment house even labeled their fundamental approach of passive investing worse than socialism. “Haters gonna hate”, as the meme goes. ETF inflows are still up $74 billion year to date.

Regardless of the criticism, ETFs provide useful investment information in two ways. First, they offer excellent granularity on where investors and traders are placing their bets. We regularly highlight ETF money flow information in these notes, and those observations are quite popular with our readers.

Their second use comes out of another common critique: there seems to be an ETF for every imaginable purpose. This allows easy tracking of otherwise obscure investment themes. Just look for the top and bottom performers in the ETF ecosystem, and you’ll see investment strategies you might never have considered otherwise. And, given that money chases performance, there’s always the possibility of discovering the next hot trade.

We pulled data for the best and worst performing ETFs in 2018 from our friends at to see what’s at least running “warm”. A few stats first:

  • There are 2,137 US listed ETFs. Their average return YTD is -0.13%.
  • There are 27 ETFs that are up more than 20% on the year.
  • There are 24 ETFs that are down more than 20% on the year.

One key observation from just this data: there have been very few ways to make outsized returns in 2018. Only 1.3% of all ETFs show +20% returns, and most of them fall into a few specific and very high-risk categories.

So what strategies have had the magic touch in 2018? Here’s the list:

#1. Long equity market volatility. OK, not really a surprise, but given the structural limitations of these products it is still remarkable they remain at the top of the heap. A few examples:

  • VMAX (primarily one month VIX futures): +82% YTD
  • VXXB (one and two month VIX futures): +53% YTD
  • UVXY (1.5x exposure to one month VIX futures): +42% YTD
  • VXX (one and two month VIX futures): +45% YTD
  • VIIX (one and two month VIX futures): +45% YTD

Those names are the best performing ETFs this year, of any stripe. Keep in mind they all reset daily and have to keep rolling contracts – two features that should limit their buy-and-hold performance.

Worth noting: investors have redeemed over $1 billion from these five names in 2018, presumably over the general concerns regarding all VIX-based products. Bad trade there…

#2: Commodity plays. While inflation fears may be waning, some hard asset-type ETFs have done well:

  • NIB (tied to futures contracts on cocoa. Yes, like in chocolate): +44% YTD
  • USOU, WTIU, OILU, UWTI, UWT, (3x oil prices): all up +30% YTD

Worth noting: cocoa is reportedly in short supply around the world. We know nothing about this market, but if you want to read more, here you go:

Also notable: the 3x levered funds mentioned here have also seen outflows YTD, just like the volatility ETFs.

Aside from that, all the other commodity winners are oil price related. If you have a strong point of view on this, there is obviously a wealth of choice in ETF land.

#3. Direct/indirect interest rate plays. We’ve been highlighting the rise in Libor in these pages over the last few weeks, but didn’t realize until today that there is an ETF for that (because… of course there is). That, and other rate-based ETFs here:

  • ULBR (pays Libor rates): +26% YTD
  • DRV (3X short levered REITs): +21% YTD
  • DTYS (Short 10 Year Treasuries): +21% YTD

Summing up: this brief analysis shows one common theme. Outsized returns in 2018 have thus far required even more outsized risk. For all the volatility, there have been few ways to make +20% on anything, unless it involves leverage (oil), the risk of daily resets (VIX), or a very sweet tooth (yes, cocoa).