With the New Year upon us and the Fiscal Cliff deadline resolved (albeit temporarily), it’s worth taking stock of what the hottest sectors and ETF themes are thus far in 2013 to give a sense for where the market is hot and where you may want to focus efforts on for the remainder of the year. I’ve intentionally excluded leveraged ETFs (which I short for profit, as they decline over time) since they distort true returns of underlying sectors and instead focused on traditional ETFs and ETNs. Here they are in order of % Return YTD as of Thursday’s market close:
Market Vectors Solar Energy ETF (KWT) +23% – Taking a close second was Guggenheim Solar (TAN) also up 22%, so we’ll lump them together. As you can see with Wind included below, the renewables segments are top performing sectors for the year thus far. However, solar stocks in particular have soared in recent days on news that China will be doubling solar installations (Barron’s), which is a gamechanger. Investors have rushed in sensing a strategic shift in how governments view solar and the years or orders this will surely create for the industry.
VelocityShares Daily Inverse VIX ST ETN (XIV) +15% – I included this inverse ETF since it is not leveraged. Since the VIX is the proxy for volatility, this inverse ETF is demonstrating that volatility is in further decline, hitting a new low again this week actually. This should not be surprising as indices are breaching new records as stocks rally on several sets of developments ranging from continued easy money from the Fed, the temporary resolution of the Fiscal Cliff (while the payroll tax holiday lapsed, most tax rates remained unchanged save for the very high end) and many economic reports at least meeting expectations or beating.
Market Vectors Vietnam ETF (VNM) +11% – Vietnam continues to be a low-cost alternative to Chinese manufacturing as we see wages and worker protests continue to rise there. This trend began a few years ago, but has only accelerated in recent months with continuing news out of China giving buyers of low-end manufacturing pause. Incidentally, Vietnam has one of the lowest unemployment rates in the world, at 2.2% which bodes well for the economy and market returns.
SPDR S&P Biotech (XBI)+9% – The biotech sector has been hot thus far, with this ETF actually seeing a significant inflow of funds last week. Presumably, investors anticipate further acquisitions with so much pharma cash sloshing around on the sidelines and the Fiscal Cliff resolution largely absolving big pharma and biotechs of any further cuts as part of the healthcare reforms taking effect in 2013.
PowerShares Global Wind Energy (PWND) +8% – This wind ETF is likely riding on the coattails of the recent solar stock news with the presumption renewables in general will be beneficiaries of government programs. Note that on this ETF, the daily volume is relatively low, so watch out for broad bid-ask spreads.