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The top-performing exchange-traded products of 2018

Commodities to the fore.

Given how poor investment returns were across local and international markets last year, one would expect that a significant majority of local exchange-traded funds (ETFs) and exchange-traded notes (ETNs) would have delivered negative returns in 2018. However, a surprisingly large number showed positive growth over the past 12 months.

Of the 79 products listed on the JSE with at least a one-year track record, 41 showed negative returns for the 12 months to December 31, 2018. That is only marginally more than the 38 that ended the year higher.

The positive performers were however almost exclusively products with exposure to bonds, cash, foreign markets or commodities. Only four funds tracking a JSE-related index finished the year in positive territory.

JSE-focused ETFs with positive returns in 2018
Fund One-year return
CoreShares Preftrax ETF 19.24%
Satrix RESI ETF 16.32%
NewFunds S&P GIVI SA Resource 15 ETF 10.54%
NewFunds Shari’ah Top 40 ETF 3.98%

Source: Profile Media, etfSA.co.za

By contrast, only three ETFs tracking international equity indices delivered negative returns. This was however entirely due to the weakening of the rand, as international stocks had a poor year in US dollar terms.

The real star performers were, however, ETFs and ETNs tracking specific commodities. As the table below shows, products linked to the prices of the platinum group metals rhodium and palladium delivered the highest returns last year. Products tracking wheat and gold also made it into the top 10.

Top-performing exchange-traded products in 2018
Product One-year return
Standard Bank AfricaRhodium ETF 64.57%
NewPalladium ETF 39.22%
Standard Bank AfricaPalladium ETF 38.11%
Standard Bank Palladium-Linker ETN 36.04%
Standard Bank Wheat-Linker ETN 27.29%
CoreShares Preftrax ETF 19.24%
NewWave USD Currency ETN 19.06%
FirstRand US Dollar Custodial Certificate ETF 16.36%
Satrix RESI ETF 16.32%
NewGold ETF 15.1%

Source: Profile Media, etfSA.co.za

This is the second year in a row that the AfricaRhodium ETF has been the top performer. Last year it returned over 100%.

Read: The top ETFs and ETNs of 2017

The continued rise in the prices of rhodium and palladium will be surprising to many, given that the price of platinum has been declining at the same time. The white metal was off nearly 15% for the year in US dollar terms, falling to levels last seen in 2004. It is currently trading below the price it hit during the global financial crisis in 2008.

Palladium and rhodium are however far rarer, given that they are by-products from platinum mining. With major producers such as Impala Platinum cutting back on production, the supply of these metals has become extremely tight. This has encouraged prices higher.

These fundamentals also look unlikely to change in the near term. However, because these are mainly industrial metals used predominantly in the automotive sector, their outlook will depend a lot on the performance of the global economy. If growth slows, so will demand.

Movements in the rhodium price in particular are also very difficult to predict since it trades in very opaque markets. It is only bought and sold over the counter, and there is little data available to investors. It is therefore a rather speculative investment.

Importantly, investors should also appreciate that all three of the palladium and rhodium ETFs track the rand price of the metals. They are therefore also impacted by currency movements.

This is also evident in the gain shown by the NewGold ETF. The gold price actually fell from just over $1 300 per ounce to around $1 280 per ounce over the course of last year, but the ETF showed a decent gain. This was entirely due to a weaker rand.

Rand weakness also led to the gains posted by the NewWave USD Currency ETN and the FirstRand US Dollar Custodial Certificate. Both effectively provide exposure to the dollar-rand exchange rate.

Worst performers

At the other end of the spectrum, the products that showed the largest declines were all exposed to the South African market. The weakest performers were listed property funds, followed by the Satrix Capped INDI.

This is quite a notable turnaround, as the listed property and industrial sectors on the JSE had been top performers for many years. Their recent weakness is once again a lesson to investors that all markets work in cycles. Nothing appreciates forever.

Worst-performing exchange-traded products in 2018
Product One-year return
CoreShares Proptrax SAPY ETF -25.95%
Stanlib SA Property ETF -25.4%
CoreShares Proptrax 10 ETF -25.34%
Satrix Property ETF -22.22%
Satrix Capped INDI ETF -18.2%

Source: Profile Media, etfSA.co.za

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If investing trends are still the same, the top performers listed here are the ones NOT to buy. And likewise, Property might be a good bet?

Agree with JapieM. Thanks Patrick for a nice article, I have very little experience with sector based ETF’s and would appreciate more articles on sectors that are likely to improve in the next few years.

Is hindsight financial reporting what money web has become? Bit pathetic. How about a little foresight or even ideas on how to stimulate sectors.

I disagree. Journalism is reporting the facts. Stimulate the conversations yourself in the comments. That’s how it works.

Saibotkram1988…Moneyweb can give you facts with which you can build your own future! How about that?

My rule of thumb. First Minerals do well, then Industrials, then Small Cap and finally Property. So property did badly and minerals were good last year. So that gives me a clue ( historically ) where we are in the market. So logicaly property is a good bet!

Thats what I thought when the property index dropped by 13%, it subsequently dropped another 20%. Turns out to be a value trap I am not sure what effect EWC will have on property funds. It could be significant.

Still early days for investing in property but, even now, the D/Y is good sowhat are the alternatives?

Wish I had sold my property unit trusts in 2016, now need to make up for 30% losses before dividends.

Its only because the palladium price went up. Apparently there is a shortage of palladium. Wish I had bought Implats at 17 bucks.

NewGold, the ignored hero of tough times. Worth a 5%-10% weighting in any good portfolio.

I wish they would assimilate NewGold into the basket of ETF’s allowed in Tax Free Savings Accounts.

SA Property, and general SA equities not for me.
Not only EWC, also many other political and hence economical woes.

New money should go 100% into cash and bonds, S&P and Europe starting to look dodgy. Rand also seems to be strengthening. Hopefully there are better buying opportunities going forward :).

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