Americans are ready for plateful food and cartful shopping as it’s time for Thanksgiving. The celebration of bounty and gratitude is in full swing in the investment world as well.
This is because the U.S. stock market has returned abundantly to investors this year, giving a boost to their spending power. The S&P 500 hit a high for the 46th time while the blue-chip Dow Jones has already set a new record for the 29th time this year. Both the indices are up 11.8% and 7.5%, respectively.
The strong rally was driven by healthy corporate earnings, continued job growth, improving economic and business conditions, renewed optimism in housing recovery, lower interest rates and low energy prices. In fact, the U.S. has enjoyed a period of sustained growth over the past two quarters, not seen in more than a decade. The economy expanded at a more-than-expected 3.9% rate in the third quarter, following the 4.6% increase in the second quarter. This suggests that the U.S. has emerged as a stronger nation trumping global economic concerns and geopolitical threats.
Further, the Fed’s commitment to keep the interest rates lower for a considerable period of time even after the QE wrap-up are propelling the stocks higher.
While there have been winners in every corner of the space, a few ETFs have easily crushed the broad market in the year-to-date period. Below, we have highlighted three ETFs that have been star performers in the year-to-date time frame and could be better plays in the coming months. These ETFs deserve special thanks and attention going into the New Year too (see:all the Categories ETF here).
First Trust NYSE Arca Biotechnology Index Fund (NYSE:FBT)
Despite the biotech meltdown early in the year, 2014 is gradually turning out as another banner year for the health care space thanks to strong earnings growth, wave of mergers and acquisitions and encouraging industry trends. While pharma stocks are flying higher, biotech is leading the health care world from the year-to-date look.
The biggest winner no doubt is FBT, which tracks the NYSE Arca Biotechnology Index holding 20 securities in its basket. The fund is pretty well spread across each security as none of these accounts for more than 4.32% of assets. It is slightly skewed toward mid cap at 42%, followed by 31% in small caps and the rest in large caps. Further, the fund has a tilt toward growth stocks at 71%.
The product has amassed nearly $2 billion in its assets base and trades in a good volume of more than 148,000 shares a day. It charges investors 60 bps in fees per year and surged 45.7% in the year-to-date time frame. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook.
iShares Residential Real Estate Capped ETF (iShares FNYSE:REZ)
In the current ultra-low environment, investors are in search of juicy yields and continued to pile up real estate across the country. This is because REITs offer solid dividend payouts and excellent capital appreciation over longer term. The sector is also gaining immense popularity on a solid recovery in the U.S. economy.
This has translated into a great year for REZ, which gained 31.5% this year. The fund follows the FTSE NAREIT All Residential Capped Index and provides exposure to 37 U.S. residential real estate stocks and real estate investment trusts (REITs). The product is largely concentrated on the top five firms at 45% while other firms hold less than 4.5% share. About half of the portfolio is tilted toward large caps while the rest is almost evenly split between mid and small caps with a nice mix of growth, value and blend securities.
In terms of industrial exposure, specialty REITs make up for 50.7% share while residential REITs account for 47% of assets. The fund has been able to manage a decent $270.4 million in AUM while trades in small volume of 31,000 shares. Expense ratio came in at 0.48%. REZ has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
SPDR S&P Transportation ETF (NYSE:XTN)
Riding high on U.S. economic recovery and increasing investor sentiment, transportation stocks are performing remarkably well this year. Solid retail, manufacturing, and labor data act as major tailwinds to the broad growth, indicating strong demand for movement of goods across many economic sectors. This has given a boost to the transportation ETFs with XTN leading the way higher.
This fund uses the equal weight methodology for each security by tracking the S&P Transportation Select Industry Index. Holding 49 stocks in its basket with AUM of $432.6 million, each security accounts for less than 3% of total assets. The ETF is skewed toward small caps at 46% while mid and large caps account for 30% and 23% share, respectively.
More than one-third of the portfolio is dominated by trucking while airlines take another one-fourth share. Airfreight & logistics, and railroads also make up for a double-digit allocation. The fund charges 35 bps in fees per year from investors and trades in a moderate volume of about 49,000 shares a day. XTN has added about 29.4% this year and has a Zacks ETF Rank of 2 with a Medium risk outlook.
Bottom Line
These products do not only build better portfolios for investors but also bring diversification benefits by eliminating company-specific risk to a large extent with lower costs. As a result, these are considered praiseworthy in the ETF space.