By all accounts, the third quarter of the year was a horrible one for risk-asset prices. The SandP 500 dropped 6.9 percent in the July through September period, the worst quarter since 2011.
On a year-to-date basis, the SandP's losses were similar, with the index losing about 6.7 percent through the first nine months of the year.
If the SandP 500 ended the year here, it would mark the first notable full-year decline in the index since 2008, when it dropped 38.5 percent (37 percent including dividends).
Outside the U.S., there weren't many bright spots either. The MSCI World Index lost 8.9 percent in Q3 and 7.5 percent year-to-date, while the FTSE Emerging Markets Index dropped 18.8 percent in the third quarter and 15.7 percent year-to-date.
The exchange-traded funds tied to these areas such as the SPDR SandP 500 ETF (SPY | A-99), the iShares MSCI World ETF (URTH | B-97) and the Vanguard FTSE Emerging Markets ETF (VWO | C-89) have all been losing bets this year.
Bright Spots In A Down Year
Of the more than 1,700 ETFs out there, the vast majority are in the red for the year. Yet, as is typically the case, it's possible to find more than a handful of funds that are bucking the broader trend. This year has been no different in that regard.
Interestingly, the top 10 ETFs through the first nine months of 2015 encompass many different areas. With one exception, there wasn't a lot of overlap between these top-performing funds.
Taking the No. 1 spot is the QuantShares U.S. Market Neutral Momentum ETF (MOM | F-47), with a 20.6 percent return. This fund, with less than $3 million in assets, has a high risk of closure due to its tiny asset base.
However, based solely on performance, MOM has been gaining traction recently. The fund's strategy is to short the lowest momentum stocks and go long the highest momentum stocks, while remaining dollar and sector neutral.
The underlying index for MOM, the Dow Jones U.S. Thematic Market Neutral Momentum Index, has been around for years, but hasn't performed so well over the long term. It's near the highest point since 2009, but still 39 percent below its 2008 peak.
Surprising China ETF
At the No. 2 position is the Market Vectors ChinaAMC SME-ChiNext ETF (CNXT | D-47), with a 17.8 percent gain. It may be surprising to see a China ETF on the top-performers list, but consider that, at one point, this ETF was up a stunning 105 percent for the year, and it starts to make sense.
Like all China ETFs, CNXT exploded higher in the beginning of the year only to tumble sharply starting in June. This roller-coaster ride erased much of the fund's gains for the year, but it's still up solidly from where it began, and it's handily outperformed other China ETFs.
CNXT tracks the 100 largest stocks listed on Shenzhen's SME and ChiNext Boards, which tilt toward small and medium-sized companies. The fund has a heavy emphasis on industrial, tech and consumer companies in China.
3 Japan ETFs Climb
The one area where there was overlap on the top-performers list is Japan. Three ETFs focused on Japan made the cut: the WisdomTree Japan Hedge Health Care ETF (DXJH | C-66), the WisdomTree Japan SmallCap Dividend ETF (DFJ | B-94) and the WisdomTree Japan Hedged SmallCap Equity (DXJS | C-61).
Clearly, health care and small-cap stocks in Japan have done well this year. The broader Japan ETFs such as the iShares MSCI Japan ETF (EWJ | B-99) and the WisdomTree Japan Hedged Equity ETF (DXJ | B-69) haven't fared as well, but they haven't performed horribly either. They were up 2.2 percent and down 0.5 percent, respectively, through the first nine months of the year.
Outperformers In Europe
Like Japan, another region that was doing well for much of the year before the big swoon in August and September was Europe. Aided by the European Central Bank's open-ended quantitative easing program, the Vanguard FTSE Europe ETF (VGK | A-97) was up as much as 8.8 percent earlier this year, but ended the third quarter with a year-to-date loss of 3.6 percent.
That said, despite the pullback in broader Europe ETFs, a few country-specific ETFs are still well in the green for the year. The iShares Denmark Capped ETF (EDEN | B-90) and the iShares MSCI Ireland Capped ETF (EIRL | D-85) have gains of more than 14 percent so far this year.
Among Biotech ETFs, SBIO Beats IBB
Biotech garnered many headlines in the last week as the sector pulled back aggressively. After surging more than 26 percent at its highest point in 2015, the iShares Nasdaq Biotechnology ETF (IBB | A-46) ended the third quarter exactly flat, giving back all its gains.
However, IBB isn't the only biotech ETF on the market. The ALPS Medical Breakthroughs ETF (SBIO | D-70) is a more niche product than the broad IBB. SBIO holds biotech companies with drugs in phase II and phase III of FDA clinical trials. At its highs, the fund was up nearly 53 percent, but it tanked at the end of the third quarter, bringing its gains down to 12.2 percent.
RODI And GRN Also Gain
Rounding out the top 10 performers list is the Barclays Return on Disability ETN (RODI), a socially responsible exchange-traded product that invests in companies that give positive treatment to disabled people―and the iPath Global Carbon ETN (GRN | F-N/A)―which offers exposure to the carbon credits market.
Contact Sumit Roy at sroy@etf.com.
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