There are various theories regarding buying a previous year’s laggards with the expectation that the new year will bring better results.
Call it the “trash to treasure” theory. As is the case with all market theories, last year’s rubbish turning to this year’s gold is not 100% foolproof.
For example, solar ETFs were among last year’s worst performers. That trend reversed course this year as the Guggenheim Solar ETF (NYSEArca: TAN) is 2013’s top-performing sector ETF. [Seduced by Solar ETFs]
Other ETFs that struggled last year, particularly those with ties to mining of precious and base metals, have struggled this year. In fact, some of those funds have been worse performers this year than they were in 2013. [Gold Mining ETFs not so Golden]
With that in mind, here is a look at how 2012’s 10 best sector ETFs are performing in 2013.
iShares U.S. Home Construction ETF (NYSEArca: ITB)
2012 Gain: 78.1%
2013 YTD: Up 5.6%
Comment: It is clear that ITB will come nowhere close to mirroring its 2012 performance and that a tapering-induced swoon of nearly 27% from May through early September had a lot to do with that. Housing data is improving, indicating that ITB was something of a leading indicator last year, but the ETF is one of plenty of recognizable names that are still nowhere close to recapturing its pre-financial crisis glory. [ETFs Still Nowhere Close to Pre-Crisis Highs]
Guggenheim China Real Estate ETF (NYSEArca: TAO)
2012: 56.8%
2013: Down 10.7%
Comment: If real estate-related ETFs are used as forward-looking indicators, then it might be time to be cautious about the Chinese real estate market. At a time when other China ETFs are perking up, TAO is still struggling and it is easy to understand why. Some analysts are bearish on Chinese real estate and consumer shares. Additionally, TAO could be under pressure due to ongoing chatter about a possible Chinese real estate bubble. [Getting Choosy With China ETFs]
SPDR S&P Homebuilders ETF (NYSEArca: XHB)
2012: 55.6%
2013: Up 14.6%
Comment: Like ITB, XHB is still not within striking distance of its pre-crisis highs, but XHB has been the better performer this year. XHB has an advantage of ITB, that being a heavier weight consumer discretionary and retail names that are related to residential real estate. That works in a good year for the discretionary sector at large, which 2013 has been.
Market Vectors Biotech ETF (NYSEArca: BBH)
2012: 46.9%
2013: Up 57.4%
Comment: When the final closing bell for 2013 rings, there is an excellent chance that a few of the ETFs that ranked among both this and last year’s top performers will be biotech funds. BBH has a chance as it has performed noticeably better in 2013 than it did last year and that is saying something. This is one biotech ETF for investors that prefer large-cap names like Amgen (NasdaqGM: AMGN) and Celgene (NasadqGM: CELG) because the biggest biotechs dominate BBH.
PowerShares Dynamic Building & Construction (NYSEArca: PKB)
2012: 45.3%
2013: Up 18.7%
Comment: PKB is the unheralded housing and homebuilders ETFs, but this year it is outpacing its larger rivals. PKB more of a discretionary and services play as no pure-play homebuilders are found among its top-10 holdings.
First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT)
2012: 40.7%
2013: Up 42%
Comment: FBT is another biotech ETF that has a chance to do double duty on the “best of” sector lists for 2012 and 2013. The $919 million FBT differs from BBH in that it offers lower exposure to the Amgen/Celegen/Biogen (Nasdaq: BIIB), Gilead (NasdaqGM : GILD) crowd and that means more exposure to mid- and small-cap names. Biotech’s Big Four are just about 20% of FBT’s weight.
Vanguard Global ex-U.S. Real Estate ETF (NYSEArca: VNQI)
2012: 35.2%
2013: Down 1.1%
Comment: Although income investors are still hunting for yield, it has been hard to stick with rate-sensitive real estate investment trusts as interest rates have climbed. As a global ETF, VNQI should offer some insolation from rising U.S. rates, but fund has performed inline with the U.S.-focused Vanguard REIT ETF (NYSEArca: VNQ).
RevenueShares Financials Sector Fund (NYSEArca: RWW)
2012: 34%
2013: Up 34%
Comment: RWW is a smart-beta play on a high-flying sector as it is backed by a revenue-weighting methodology. The ETF is home to the same 81 stocks found in the S&P 500 Financial Services Sector Index, but RWW’s methodology is not only unique, but profitable. After all, in a year when bank ETFs have soared, RWW is still one of the group’s best performers. [Smart Beta ETFs Draw Praise]
SPDR S&P Biotech ETF (NYSEArca: XBI)
2012: 32.4%
2013: Up 39.6%
Comment: XBI is the equal-weight fund in the biotech ETF group, so that means substantially lower allocations to biotech’s Big Four and more exposure to less familiar names. It appears unlikely that XBI will be on the 2013 Top-10 Sector ETF list, but it is hard to complain when the fund has been this year than it was last year.
iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB)
2012: 31.5%
2013: Up 56.5%
Comment: Like BBH, IBB, the largest biotech ETF by assets, sports a large weight to biotech’s Big Four. That has been be recipe for success this year as the two funds are battling for the crown of 2013 best biotech ETF. IBB has been among the standouts in what has been a stellar year for biotech and health care ETFs in general. [Health Care ETFs Prescribe New ETFs]