5 Global ETF Investing Trends to Ride into Year-End

Rudy Martin

If you ever visit the tracks, you know the home stretch always draws the most cheers.

Investors do the same kind of cheering as the calendar year enters its "home stretch." This year’s fourth quarter is shaping up to be a barn-burner!

The financial racetrack has some big hurdles. The budget stand-off has federal agencies running on skeleton crews. Bond traders don’t know what to expect if Congress fails to raise the Treasury debt ceiling. Everyone is wondering when (and if) the Federal Reserve will start "tapering" its quantitative easing program.

Those are three formidable obstacles.

While I normally recommend individual stocks in my Global Trend Trader service, I keep a close eye on Exchange-Traded Funds.

Their trading action helps me identify industries and regions where significant trends are developing. And for tapping into overseas markets from the safety of home, ETFs offer a tremendously powerful tool to broaden your investment reach while doing so with a great deal of peace of mind.

When I’m hunting opportunities in ETFs, I look at both performance and money flows.

Which ETFs will win the 2013 horse race? As you can see in these tables, the field is still wide open.

Here are some of the trends I see.

2013 EQUITY ETF PERFORMANCE SUMMARY THROUGH SEPT. 30

Data as of Sept. 30, 2013.

Leveraged and “inverse” ETFs not included.

Source: Morningstar

TREND # 1: Green Energy

The 2013 ETF leaders include several alternative energy ETFs. Six of the top YTD gainers are in solar, "green," alternative or wind energy.

Two solar ETFs also topped all other equity ETFs in the third quarter.

Even with fracking and $100+ oil prices in the headlines, traditional energy is nowhere on the lists —  unless you consider nuclear energy "traditional." Global X Uranium (URA) fizzled 9.39% in the latest quarter.

TREND # 2: Precious Metals

While precious metals ETFs still dominate the year-to-date losers, they had better luck in recent months. No member of that group made the third quarter top 10 losers.

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Internal Sponsorship

Two ETFs representing physical gold lost enough assets to make the bottom 10 net YTD outflows list. The SPDR Gold ETF (GLD) also suffered the largest net outflow in the third quarter.

2013 NET INFLOWS & OUTFLOWS

FOR ETFs OF ALL CLASSES THROUGH SEPT. 30

Data as of Sept. 30, 2013.

Source: IndexUniverse

While ETFs based on physical precious metals didn’t attract major new assets, the Market Vectors Gold Miners ETF (GDX) received more than $1.5 billion of new capital during the third quarter.

Someone must be interested in the mining sector.

TREND # 3: Bond ETFs

In addition to pulling money from gold ETFs, investors also deserted longer-term fixed-income ETFs. Several are on the redemption lists for both the year-to-date and the latest quarter.

The reason is no mystery: The Federal Reserve’s "taper" plan pushed long-term interest rates higher, hammering the value of bond portfolios.

TREND # 4: Emerging Markets & Europe

The once-hot emerging-market sector is nowhere on this year’s equity ETF top 10 winners list. The third-quarter loser list makes it abundantly clear that Indonesia, India and Turkey were not popular places to invest this summer.

The Q3 winner’s list contains an interesting lesson, though.

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External Sponsorship

When a market is beaten down long enough, the subsequent rebound can be very profitable. Look at those 30% or more bounces by the Market Vectors Egypt Index ETF (EGPT), Global X FTSE Greece 20 (GREK) and iShares MSCI Spain Capped Index (EWP). This is what can happen when bears finally exhaust their selling pressure.

As Greece and Spain rebound, investors seem to be rethinking prospects for the rest of Europe, too. The Vanguard FTSE Europe ETF (VGT) attracted $3 billion of new capital during the third quarter. The Vanguard FTSE Developed Markets ETF (VEA), which has a large Europe allocation, received $1.6 billion in net new capital over the same period.

TREND # 5: Global Tech

I see an interesting trend in Chinese technology stocks. Three of the third-quarter’s top ETF equity gainers are in that category.

The Guggenheim China Technology ETF (CQQQ) vaulted 27.24% over the past three months and the Global X Nasdaq China Technology ETF (QQQC) shot up 26.64%.

The PowerShares Golden Dragon China ETF (PGJ) isn’t pure technology, but its big tech allocation no doubt helped PGJ soar 36.40% during the quarter.

If ETF popularity is an indication, social media is a growing technology trend. Global X Social Media (SOCL) jumped 31.33% in the latest quarter and 52.21% year-to-date.

Strong gains in Facebook (FB) helped propel the social media group. This is an interesting technology trend. I plan to watch it very closely the next few months.

The border between technology and health care is also hopping this year. Three biotechnology ETFs — the Market Vectors Biotechnology (BBH), PowerShares Dynamic Biotechnology and Genome (PBE) and iShares Nasdaq Biotechnology (IBB) — each rewarded their shareholders with YTD returns exceeding 50%.

I don’t bet on horse races —  but I would wager you could find other interesting new ideas in these tables. Just use your eyeballs and invest a little time.

Happy hunting!

Rudy Martin

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