Most serious SA investors are no strangers to the growth of passive investments locally and abroad. Throughout 2014 a fierce battle has been waged between active and passive managers championing the pros and cons of both. Whether you like it or not, index trackers or ETFs, are her to stay because in their simplest form they allow access to beta at a lower cost.  This Bloomberg article focuses on a really eclectic basket of ETFs which I imagine most main stream investors may not have considered. – CP
By Eric Balchunas, Bloomberg
Dec 16 – There’s no shortage of cliches used to describe the rapidly expanding exchange-traded fund industry — it’s growing like wildfire, like weeds, like kudzu. ETFs are definitely an invasive species in the financial services world, and for many investors a welcome one, thanks to their low costs and targeting of niche, hard-to-access investing areas. And, yes, the industry is getting really big: Assets hit $2 trillion in 2014 as $196 billion in new cash rolled in.
The pace of new ETF launches has also picked up, and the 196 new offerings in 2014 is a 29 percent jump over 2013. There are now ETFs for about everything you can think of — and 1,000 more in registration with the Securities and Exchange Commission. The ETFs that did best in 2014 were tied to lower interest rates, sinking oil prices and a surging U.S. dollar. To come up with this year’s ETF Awards, Bloomberg senior ETF analyst Eric Balchunas considered performance, how much cash a fund attracted and how well an ETF was able to capitalize on trends.
Best/Worst U.S. Equity ETF
Best: The First Trust NYSE Arca Biotechnology ETF
Biotech ETFs led a booming health care sector, and FBT led them all. It returned 47 percent, capping a five-year run that has it up 264 percent. FBT showed the upside of ETFs that give every stock an equal weight, rather than letting the biggest stocks dominate the portfolio. Such egalitarianism means the ETF can tilt toward smaller, more volatile stocks — stocks that typically lead a rally. FBT beat its rivals by five percentage points, and brought in $570 million in new cash.
Worst: The SPDR S&P Oil & Gas Exploration
Okay, so there’s also a downside to weighting all of your portfolio stocks equally — the same stocks that lead a rally often fall the hardest when the music stops. The sharp drop in oil prices slammed the SPDR S&P Oil & Gas Exploration ETF — it lost 36 percent.
Best/Worst U.S. Fixed-Income ETF
Best: iShares 20+ Year Treasury Bond ETF
TLT was a total pariah in 2014. A slew of pundits predicted that interest rates would rise and crush returns on long-term bond ETFs such as TLT. Instead, rates fell and TLT returned 27 percent. It became a cash magnet, attracting $3 billion. It was the only fixed-income ETF to return more than 20 percent in 2014, and to rake in more than $2 billion in cash.
Worst: AdvisorShares Peritus High Yield ETF
Bond ETFs joined equity ETFs like XOP in suffering a painful oilbath. The worst of them all: Energy-heavy AdvisorShares Peritus High Yield ETF lost 9 percent. HYLD’s freedom to pick whatever junk bonds and high-yielding equities it wants worked like a charm in 2013, when it was up 12 percent. This year? Not so much.
Best/Worst Commodities ETF
Best: ETFS Physical Palladium SharesÂ
Eighty percent of commodity ETFs lost money in 2014. Besides nice runs for coffee and livestock exchange-traded notes, the only one to write home about was PALL, which gained 11 percent. That return was more than double that of the next-best precious metals ETF. Palladium benefited from higher demand from strong auto sales, and supply shortages caused by a miners’ strike in South Africa and potential sanctions on Russia.
Worst: United States Oil Fund LP
Falling oil strikes again: The United States Oil Fund LP plunged 37 percent. That’s topped only by its 56 percent plunge in 2008. Even so, USO led all commodity ETFs with inflows as many investors tried — and failed — to call a bottom.
Best/Worst International ETF
Best: Deutsche X-trackers MSCI EAFE Hedged Equity ETF
A strengthening dollar, as well as moves in Europe and Japan toward U.S.-style quantitative easing, played to DBEF’s strengths. The ETF, which tracks stocks in Japan and Europe but hedges out the effect of currencies, is up 3 percent. The majority of big international ETFs were down 5 percent, on average. Investors rewarded the ETF with $1.2 billion in cash — not bad for a product that started the year with $257 million.
Worst: Cambria Foreign Shareholder Yield ETF
Slumping commodity prices hurt the Cambria Foreign Shareholder Yield ETF, which invests in the top 100 foreign companies ranked by dividend payments and share buybacks. It lost 11 percent, compared with a 7 percent loss for the MSCI EAFE Index. It has a big stake in Australian stocks, and the impact of falling commodity prices on them really hurt the ETF.
Best/Worst Emerging Markets Fund
Best : SPDR S&P Emerging Asia Pacific ETF
GMF lapped all emerging market ETFs with a 7 percent return, well above the MSCI Emerging Markets Index’s 5 percent loss. Holdings in China, Taiwan and India make up 75 percent of the portfolio. That was a good thing this year as China cut rates, Taiwan rode the surge in semiconductors and India rallied 32 percent after the election of Narendra Modi. The ETF took in $268 million in new cash.
Worst: WisdomTree Emerging Markets Equity Income FundÂ
The popular WisdomTree Emerging Markets Equity Income Fund can blame Russia for its 15 percent loss. The majority of that underperformance came from the 19 percent of fund assets DEM had in a crumbling Russia. Russian companies tend to pay big dividends — but that pales next to falling oil prices, sanctions and a ruble in freefall.-BLOOMBERG
