ETFs Riding High in Q4 Despite a Shaky Market - ETF News And Commentary

The global stock market saw a weak start to the final quarter with every corner witnessing huge selling due to sluggish economic data. Global economic growth fears, uncertainty in the Fed policy, spread of Ebola virus and weak corporate earnings took a toll on the stock market performance.

In fact, the lackluster German data, which raised doubts over Euro zone slipping into triple-dip recession, persistent weakness in Japan, disappointing data from China as well as heavy sell-off in the technology and energy sectors dampened investors' mood. This is especially true as the MSCI World Index has fallen over 6% while both the S&P 500 and Dow Jones have dropped nearly 5.5% so far this quarter (read:

).

Moreover, a strengthening dollar, a steep fall in oil prices and growing geopolitical tensions added to the global market volatility. Meanwhile, a host of commodities saw bumpy trading to start the quarter while the performance of the bonds has been volatile. Despite the weak macroeconomic fundamentals, several products across a number of asset classes have comfortably managed to stay in the green.

Below, we have highlighted some ETFs that stood out in the early days of October and will likely continue doing so as we progress in Q4.

Volatility products have been the major gainers in the ongoing turbulence, as these tend to outperform when markets are falling or fear levels over the future are high.

is leading in the space having returned 51.9% quarter to date, followed by gains of 29.5% for

and 29.3% for

.

CVOL tracks the Citi Volatility Index Total Return and provides investors with direct exposure to the implied volatility of large-cap U.S. stocks. The benchmark combines a daily rolling long exposure to the third and fourth month futures contracts on the CBOE Volatility Index (VIX) with short exposure to the S&P 500 Total Return Index. The product has amassed $7.7 million in its asset base while charges 1.15% in annual fees (read:

).

The other notes follow the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve and has 0.89% in expense ratio. VXX is the most popular volatility ETF with $1.2 billion in its asset base while VIIX has $11.2 million in AUM.

Though most products are still seeing rough trading in this corner of the space, corn price has started to pick up and coffee is continuing to see its pricing strength. Both coffee ETFs –

and

– surged 12.1% and 11.1%, respectively, while Teucrium Corn ETF (

) added about 9%.

JO seeks to deliver returns through front month coffee futures contracts while CAFE looks to select the futures contracts that best mitigates the impact of roll yield on the underlying investment. The former has accumulated $101.6 million in AUM while the latter is often overlooked by investors as depicted by its AUM of just $8.9 million. Both products charge 75 bps in annual fees (read:

).

Coming to corn ETF, it doesn't just cycle into the next month as expiration approaches but utilizes a much more in-depth approach. It uses three futures contracts for corn, all of which are traded on the CBOT Futures Exchange. The three contracts include the second-to-expire contract, weighted 35%; the third-to-expire contract, weighted 30%; and the contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%. The product is the high cost choice in the agricultural space, charging 2.75% in fees per year and having AUM of $125.7 million.

Given the uncertainty in the global market, investors are flocking to the safe haven long-term government bonds to protect their portfolio from losses. Two ETFs are gaining immense attention –

and

– and provide exposure to the long-term Treasury STRIPS market.

ZROZ tracks the BofA Merrill Lynch Long US Treasury Principal STRIPS index and holds 21 securities in its basket. The effective maturity and effective duration of the fund is 27.39 years. It charges 15 bps in annual fees and has $132.6 million in AUM. The ETF is up 7.3% quarter-to-date (see:

).

On the other hand, EDV follows the Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index. The fund has average maturity of 25.3 years and average duration of 24.9 years. The fund is slightly cheaper than the PIMCO counterpart by 3 bps and has generated returns of 6.7% so far in the quarter.

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