ETF Winners that Could Keep Their Momentum (EPHE, FBT, XHB)
The first half of 2012 will be remembered for whipsaw trading action at the hands of intense global macroeconomic headwinds. Europe’s sovereign debt crisis, fears of a hard landing in China and a spate of disappointing economic data in the U.S. all took turns weighing on global equity markets.
Still, plenty of ETFs were able to finish the first half with positive year-to-date returns due, in large part, to the benefit of the January/February rally and last Friday’s buying spree to close the second quarter. ETFdb has compiled a helpful list of the best- and worst-performing ETFs in the first half.
Using that list as a starting point, investors can find a couple of ETFs that have the potential to carry some momentum into the second half. Note that this list does not include leveraged and inverse funds.
iShares MSCI Philippines Investable Market Index Fund (NYSE: EPHE)
The iShares MSCI Philippines Investable Market Index Fund turned in a stellar first-half performance, offering returns that were more than five times better than those of the Vanguard MSCI Emerging Markets ETF (NYSE: VWO). At various points during the first six months of the year, EPHE showed strength relative to the broader emerging markets universe, indicating it was one of the better bets among ETFs tracking developing nations.
The Philippines is one of the primary drivers of returns accrued by the new CAPPT acronym and EPHE can now be found trading just pennies below its 52-week high. Should the fund post consecutive closes above $30 on strong volume, it might be a bullish sign.
First Trust NYSE Arca Biotech Index Fund (NYSE: FBT)
As ETFdb notes, the First Trust NYSE Arca Biotech Index Fund was the second-best performer in the first half among non-leveraged funds and with good reason. The biotech sector has proven durable in the face of macroeconomic issues. Plus, the sector has been benefiting from new drug approvals and increased mergers and acquisitions activity and speculation.
The reality is biotech stocks can move higher regardless of whether or not Europe’s sovereign debt crisis improves. In fact, FBT is an excellent bet to keep its momentum going because seasonality is about to turn in favor of the biotech sector.
Note the Market Vectors Biotech ETF (NYSE: BBH) has been on fire as well, gaining more than 29 percent through the first half of the year. BBH touched a new 52-week high today.
SPDR S&P Homebuilders ETF (NYSE: XHB)
It is a big “if,” but if the residential real estate market can gain some steam in the second half, the SPDR S&P Homebuilders ETF will build on what was a strong start to the year. There is a caveat when it comes to XHB when the fund is compared to its primary rival, the iShares Dow Jones US Home Construction Index Fund (NYSE: ITB).
XHB’s allocations to the discretionary retail side of residential real estate, meaning stocks such as Williams Sonoma (NYSE: WSM) and Bed Bath & Beyond (NASDAQ: BBBY), is far heavier than ITB’s. Arguably, that implies XHB needs at least some help from consumers, even those consumers that are not buying houses, to move higher.
The exposure to discretionary retail names makes a big difference in terms of performance. While both ETFs can perform well in the second half, if the data is there to support bullish action, ITB won the first half battle by almost 1,700 basis points.
For more on ETFs that could outperform in the second half, click here.
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