October was extremely volatile in the U.S. equity markets. This is especially true as concerns over global economic health, strong dollar, lower oil prices, Ebola and a semiconductor meltdown hurt stock prices to start the final quarter.
However, the sentiments reversed later in the month buoyed by robust corporate earnings and some upbeat economic indicators across the globe. Further, the hopes of a new stimulus from European Central Bank (ECB) added to the market strength. The U.S. stock market was hovering around the all-time high on the last day of the month after Bank of Japan ramped up its stimulus measures and the country’s government pension fund boosted its target for equity holdings.
Meanwhile, commodities performance has been mixed with a host of agricultural products and industrial metals rising on improving demand/supply dynamics and favorable global trends. However, precious metals have seen rough trading despite their flight to safety.
With that being said, we highlighted two best and worst ETF performers of last month.
Best ETFs
ELEMENTS SPECTRUM Large Cap U.S. Sector Momentum Index ETN (NYSE:EEH) – Up 50.40%
Given a huge level of volatility, investors are honing in on the large cap stocks, which tend to be the most stable in an adverse economic scenario while at the same time offer capital appreciation in a booming market. Though this ETN is unpopular and illiquid with $1.9 million in AUM and average daily volume of 7,000 shares, it emerged as a solid winner last month.
This is because of its unique momentum strategy that seeks to increase exposure to the sub-indices that outperform the S&P 500 and reduce allocations for the underperformers. The note comes with a cash payment at scheduled maturity or early redemption based on the performance of the SPECTRUM Large Cap U.S. Sector Momentum Index and is issued in the USA by Swedish Export Credit Corp. The ETN charges a higher 75 bps in fees per year.
Teucrium Agricultural Fund (NYSE:TAGS) – Up 15.63%
Agricultural commodities have bounced back from their multi-year lows with grain prices on the rise buoyed by strong demand and tightening supply conditions. This is especially true as the current harvest season (2014-2015) for soybean and corn started on a weak note thereby raising the price. Additionally, unfavorable weather conditions in key wheat-growing regions in Australia and Russia could weigh on supply, thereby resulting in the wheat price rally.
Given this, the products in this corner of the commodity market have seen solid trading to start the final quarter with TAGS being the top performer in this category. This fund provides exposure to four core agricultural commodities – corn, wheat, soybeans and sugar – without the need for a futures account. This is easily done by investing directly in shares of the four Teucrium Funds: Teucrium Corn Fund, Teucrium Wheat Fund, Teucrium Soybean Fund and Teucrium Sugar Fund and in equal weightings and reduces the effects of both contango and backwardation.
The product has amassed just $1.7 million in its asset base and trades in a light volume of less than 1,000 shares a day. It charges 50 bps in annual fees from investors.
Worst ETFs
Market Vectors Junior Gold Miners ETF (ARCA:GDXJ) – Down 27.69%
Acting as a leveraged play, gold miners were hit hard last month as gold price plummeted to the lowest level in over four years. The selling accelerated in the last three days after the Fed confirmed the end of the QE3 program and Japan announced a surprise stimulus to revive its sluggish economy. The move gave further support to the U.S. dollar and since the yellow metal is traded in greenback, a rising dollar makes gold expensive in other countries.
While all gold miner ETFs lost in double digits last month, GDXJ is the biggest loser. This product targets the small cap segment of the gold mining industry by tracking the Market Vectors Global Junior Gold Miners Index. It is one of the largest and most popular in the space with AUM of over $1.8 billion and average daily volume of $7.9 million shares.
Holding 63 securities in the basket, the fund is widely spread across a number of securities with each accounting for less than 4.4% share. Canadian firms take the lion’s share at 67%, though Australia (18.9%) and the U.S. (9.5%) round out the top three.
C-Tracks Citi Volatility Index ETN (NYSE:CVOL) – Down 21.77%
Though this volatility product, linked to the Citi Volatility Index Total Return, was surging in early October, it suddenly turned into a top loser at the end on growing optimism in the stocks. This is because volatility levels decreased in the last days of the month and this product tends to underperform when markets are rising or fear levels over the future are low.
The note provides investors 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 VIX with short exposure to the S&P 500 Total Return Index. The product has amassed $4.6 million in its asset base while charges 1.15% in annual fees. Average daily volume is moderate as it exchanges 88,000 shares in hand.