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Top & Flop Zones of First-Half 2020 and Their ETFs

Sweta Killa

Stock markets across the globe have witnessed wild swings in the first half of 2020 thanks to the coronavirus outbreak. After plunging 35% from Feb 20 to Mar 23, they are now within 10% of February’s record highs on a slew of fiscal and monetary stimulus. Central banks across most major economies have slashed interest rates to zero or below (read: Top-Ranked ETFs That Crushed the Market in 1H). 

Additionally, progress in the development of a coronavirus vaccine or treatment and pick-up in economic activities after reopening led to a market rally. However, the second wave of coronavirus infections once again made investors jittery to end the first half.

In the commodity world, oil prices collapsed to negative territory for the first time ever on Apr 20. The pandemic, which brought the economy to a standstill, led to an unprecedented fall in oil demand and a rise in crude storage. Nevertheless, oil made the greatest comeback in history thanks to production cuts by major oil producers and signs of a recovery in demand as some business lockdowns have been lifted globally.

Given this, we have highlighted the best and worst-performing zones and their ETFs in the first half:

Best Zones

Volatility


Volatility products have been the winners due to heightened market volatility. In particular, iPath Series B S&P 500 VIX Short-Term Futures ETN VXX skyrocketed 136%. It focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months of VIX futures contracts. This ETN is unpopular and illiquid with AUM of $730.6 million and average daily volume of 44.5 million shares. The note charges 89 bps in annual fees.

Biotech

The sector is benefiting from the COVID-19 pandemic that has kept biotech and pharma players all over the world on their toes for a vaccine or a treatment. ARK Genomic Revolution Multi-Sector ETF ARKG has been the biggest beneficiary, climbing 52.1%. This is an actively managed ETF, focusing on companies likely to benefit from extending and enhancing the quality of human and other life by incorporating technological and scientific developments plus improvements and advancements in genomics into their business. With AUM of $1.3 billion, the fund holds 37 stocks in its basket and has 0.75% in expense ratio. It trades in average daily volume of 384,000 shares (read: How Are Biotech ETFs Reacting to Coronavirus Treatment News?).

Cloud Computing

The coronavirus pandemic has resulted in a dramatic shift in consumer behavior toward the digital world. This is because stay-at-home orders have boosted demand for work and entertainment from home, spurring demand for cloud computing. Cloud computing has encouraged video conferencing, gaming, e-commerce, remote project collaboration, online classes and several other programs. The solid trend continues even with the economy reopening. As a result, WisdomTree Cloud Computing Fund WCLD surged 49.1% in the first half (read: Top Sector of 1H & Its Top ETFs).

This fund offers exposure to emerging, fast-growing U.S.-listed companies (including ADRs) primarily focused on cloud software and services, and follows the BVP Nasdaq Emerging Cloud Index. It holds 52 stocks in its basket and charges investors 45 bps in fees per year. The product has amassed $402 million in its asset base and trades in average daily volume of 182,000 shares. It has a Zacks ETF Rank #2 (Buy).

Worst Zones

Oil


Although oil price has strongly rebounded after the historic collapse in the wake of production cuts by major oil producers and an uptick in demand with easing lockdowns measures, the oil ETF has not kept up with the trend and is lagging. United States Oil Fund USO is the most-popular ETF in the oil space with an AUM of $4.6 billion and average daily volume of 13 million shares. The historic oil price collapse in April compelled the fund to change its strategy and move away from the near-term futures oil contract. Now, USO invests approximately 40% of its portfolio in crude oil futures contracts for June, approximately 55% of its portfolio in contracts for July, and approximately 5% of its portfolio in crude oil contracts for August. The ETF has 0.73% in expense ratio (read: Most Popular ETFs on Robinhood).

Shipping

Dry bulk freight rates dropped on shrinking demand across all vessel categories. As such, Breakwave Dry Bulk Shipping ETF BDRY is down 51.1%. It provides exposure to the daily price movements of the near-dated dry bulk freight futures. The fund has accumulated about $43.9 million in AUM and trades in a small volume of about 145,000 shares per day on average. It charges a higher annual fee of 1.85%.

Airlines

Though reopening of the economy coupled with new safety measures resulted in a pick-up in travel demand lately, the pandemic has led to bloodbath in airline stocks. In fact, the airline industry has suffered the biggest shocks during the coronavirus crisis with several airlines on the brink of collapse. Travel bans and orders to stay home have diminished demand for air travel. As such, U.S. Global Jets ETF JETS plunged 46.6% in the first half (read: ETFs With More Than 1000% Growth in AUM This Year).

This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 40 securities and charges investors 60 bps in annual fees. The fund has gathered $1.4 billion in its asset base while seeing solid trading volume of nearly 3.4 million shares a day. It has a Zacks ETF Rank #4 (Sell) with a High risk outlook

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