China ETFs Power Ahead In 2015; Gold, Silver Get Shine Back

Best ETFs For 2015: May Performance Update

Several sector ETFs have solar-powered investors to double-digit gains in 2015 so far. But for the brightest gains, Americans turned to foreign shores where China lords over all.

U.S. equity exchange traded funds recovered in recent trading sessions after broad losses as April gave way to May. Both higher interest rates and mixed earnings weighed on U.S. stocks.

“We don’t expect more than a modest increase in rates, but even that may be enough to push volatility higher, which is likely to be a headwind for many of the most popular, so-called momentum stocks,” Russ Koesterich, global chief investment strategist for BlackRock, wrote on May 11.

He cited biotech and social media stocks as examples. They peaked in April but then tumbled hard along with the uptick in volatility.

SPDR S&P 500 (ARCA:SPY), the $ 180.5 billion proxy for the broad market, gained 2.5% in the past month. It’s up 4.1% year to date.

SPDR S&P Biotech (ARCA:XBI) is near where it was a month ago, having soared 23.9% so far in 2015. Similarly, Global X Social Media (NASDAQ:SOCL) inched up 1.2% in the past month. Year to date, it’s up 13.6%. It’s 5% off its recent high, but back above its 50-day moving average, a bullish sign.

But Koesterich thinks the loss of momentum will continue. He suggests increasing value-oriented stakes. Namely, integrated oil companies that trade at a deep discount to the S&P 500 despite a rally from their recent lows.

Both EOG (NYSE:EOG) and Pioneer (NYSE:PES) plan to resume drilling and rig deployment. New supply could slow the rally and stabilize oil prices, Koesterich says.

Overall, investors should expect “good, but not great, growth” and allocate a healthy amount to international stocks, he advised.

Indeed, even the best-performing sector ETF year to date — Guggenheim Solar (ARCA:TAN), up 41.3% — trails foreign-focused ETFs by a margin. Market Vectors ChinaAMC SME-ChiNext (ARCA:CNXT) surged 13.9% in the past month alone, taking its year-to-date returns to 89.5%.

It invests in 100 small and midsize China A-shares, which have exploded in popularity as the Asian nation opens up its economy. It’s also been helped by a tilt toward tech and consumer startups — the sectors and companies driving innovation and growth in China. Plus, its 0.66% expense ratio is lower than that of rival A-share ETFs.

But Deutsche X-trackers Harvest CSI 1500 China A-share Small Cap (ARCA:ASHS), up 66.4% in 2015 so far, is more diversified. It holds roughly 500 companies.

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