It's time once again to review the ETF Leader Board. Data is updated through June 2017, and goes back 10.5 years to 2007. We look at the winners over several time frames: 2017 YTD, and 1, 3, 5 and 10 years.
We also look at the ETF category level, and the individual ETF level. The goal is to give you a sense of the undercurrents at work below the surface of the markets.
We begin with the most granular view of ETF categories - 2017 year-to-date leaders.
The 2017 leader board tells us which broad categories (asset classes) have been hot since Trump arrived on the scene. #1 is Healthcare, which makes sense given the pledge to repeal and replace the Affordable Health Care Act on day one of the Trump administration. Investors anticipated that this would provide relief to healthcare providers and insurance companies.
Technology came in #2. This partly reflects the current infatuation with the FANG stocks. But as you will see a little later in this report, it also reflects a durable leadership role.
The most interesting thing about 2017 is the dominance of non-US markets. 7 out of the 10 leading categories are either non-US or Global ETFs. It might have something to do with the fact that the US economy is growing more slowly than the rest of the world. It may also be a result of valuations - high for the US, and more reasonable for the rest of the world.
Next up is the 12 month view of the board. Twice as long as the YTD view, and includes the "world before Trump."
Non-US stocks are still heavily represented in the above table, but look at Healthcare. It dropped from #1 to #10. Still pretty respectable in a field of 50 categories, but notable nonetheless.
Another category that caught my eye was Financials. They were absent from the YTD board, which tells me that they have given up at least part of their leadership since the election. They dropped from 2nd place on the 12 month board, to 24th place on the YTD board. There's something happening there...
When we broaden the frame to 3 years, one thing becomes abundantly clear. No more foreign ETFs on the leader board. This tells me that the ascendance of the foreign markets is a relatively new phenomenon.
Technology, Financials, and Healthcare are firmly entrenched as leaders on a 3 year horizon. This tells me that their current leadership is no flash in the pan. These are solid leaders with long tails.
As we continue to widen the lens, we gain a sense of stability and durability among the leaders.
Technology, Healthcare, and Financials are still the Trifecta of the ETF horse race. The absence of foreign influence reinforces the idea that their ascendance is a new phenomenon.
When we open the lens to the 10 year view, nothing much changes.
Healthcare and Technology are still leading the market, along with Consumer Staples (a defensive category). But where are the Financials? Oh yeah, they are still licking their wounds after the drubbing they took in 2008. It took a long time for them to recover their leadership role in the market.
Our last board shows the individual ETFs that have made the most money for investors since 2012. What's different about this table is the way I calculated the numbers. In all of the previous tables, I simply averaged the annual returns. But in this table, I calculated the $ gains an investor received if he/she bought the ETF in 2012 and still holds it today.
Why did I choose this time frame and this method of calculation? Because in the real world, very few investors hold on to an ETF for more than 5 years. And, the actual profit from owning an ETF is more relevant to an investor than the "average return" over a given time frame.
What does the above table tell us? For one thing, Biotech has been an awesome playground for investors. Same for Semiconductors. Scan the list and see if you can spot any of your favorites.
The big takeaway from this table, at least for me, is that investor performance is all about asset allocation. Pick the wrong asset classes, and you will underperform. This exercise is one way for you to get some perspective about which asset classes are on the rise, and which may be fading away.