With sector rotation in full swing, and the tug-of-war between growth stocks and value stocks continuing to slow the overall market to a crawl, it’s hard to know where to invest in a given month, week or even day. To drill down into what sub-sectors and niche industries are truly doing well, I thought it would be interesting to examine what have been the best-performing ETFs of 2019 (so far). Mind you, I had no real idea of what might make this list before performing this screen, which didn’t discriminate based on fund size.
Here, in order of returns, have been the best-performing ETFs of 2019 through the first (almost) 10 months:
7 Best-Performing ETFs of 2019 (so far)
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL): +200%
ETRACS Monthly Reset 2X Leveraged ISE Exclusively Homebuilders ETN (HOML): +168.8%
Direxion Daily Semiconductor Bull 3X Shares (SOXL): +130.2%
Direxion Daily Technology Bull 3X Shares (TECL): +111%
Direxion Daily MSCI Real Estate Bull 3X Shares (DRN): +94.1%
Direxion Daily Financial Bull 3X Shares (FAS): +83%
Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN): +80.7%
Okay, lots of words and numbers to unpack there. None of those fund names exactly flow off the tongue like the Volatility ETF (VIX) or the S&P 500 ETF (SPY). Many of them are small, with as few as $1 million in assets and daily trading volume as little as 2,000 shares changing hands. Thus, I’m not really recommending you buy any one of these top-performing ETFs, despite their year-to-date momentum.
But let’s pull out the words that really matter, and what they reveal about which sectors and sub-sectors investors are in favor: Homebuilders, Real Estate, Semiconductors, Aerospace & Defense, Financials, Technology.
The fact that the top two best-performing ETFs of 2019 both involve homebuilders is no coincidence. Homebuilders as a sector are up 49% so far this year, as U.S. housing starts hit a 12-year high in August thanks in part to the Fed’s interest rate cuts in early July. Meanwhile, existing home sales hit a 17-month high, which helped give the Real Estate ETF on our list (DRN) a boost.
Semiconductor stocks have also performed well, up more than 43% this year – hence the strength in the SOXL, which actually has a respectable $690 million in assets, average trading volume of more than 887,000 shares and large holdings like Nvidia (NVDA), Qualcomm (QCOM) and Texas Instruments (TXN).
Technology stocks (and ETFs) always do well when the market is strong, as it has been in 2019 despite recent turbulence/stasis.
Financials have outperformed, up more than 20% year to date. Crista Huff, chief analyst of our Cabot Undervalued Stocks Advisor, has been all over that trend, as she currently has several financial stocks in her growth and value portfolios. If you want to learn their names, click here. Otherwise, the FAS ETF listed above ($1.3 billion in assets, including most of the big U.S. banks) could be an efficient way to play the sector’s momentum.
And then there’s the DFEN, which has risen along with U.S. defense spending, which this year is budgeted for $940 billion, up from $859.6 billion last year. That’s good for defense contractors like Lockheed Martin (LM) and General Dynamics (GD), both of which are DFEN holdings (though so is Boeing (BA), which hasn’t helped matters).
What It All Means
What are my takeaways? First and foremost, that housing stocks are a good place to be right now. It’s the only sector that had multiple ETFs make the list. Second, that undervalued sectors like financials (and energy, which fell just shy of the list) are showing signs of life. And third, that semiconductors and technology are outperforming the way they normally do in bull markets.
Those latter two takeaways encapsulate the dichotomy of the current market, where certain value stocks are doing well and certain growth stocks remain strong—but you have to identify the areas of consistent strength given all the sector rotation that’s going on.
Through it all, housing has remained a constant, actually gaining strength in recent months – the two homebuilder ETFs are up an average of 55% in the last three months. The sector’s ability to weather the volatility of the last few months is a good indicator that housing stocks are a good place to invest right now, regardless of market conditions.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version.