For the third year in a row, the top-performing exchange-traded fund (ETF) in South Africa in 2019 was one tracking the price of the platinum group metal rhodium.

To December 31, the 1nvest Rhodium ETF (formerly called the Standard Bank AfricaRhodium ETF) produced a remarkable 12-month return of 140.9%.

As the table below shows, investors in this product would have quadrupled their money since the start of 2017:

Source: Profile Data, etfSA.co.za

This is, however, an extremely niche and high risk product, as it tracks a single commodity. Analysts are also now warning that the outlook for the rhodium price is looking far less attractive than it has for the last few years.

A slowing global economy, under pressure from trade frictions, is likely to mean that people will be buying fewer cars. Since the global automotive industry uses around 80% of the world’s rhodium, demand for the metal is likely to weaken.

This will also affect the outlook for palladium, which has surged alongside rhodium in recent years, and is also used almost exclusively in manufacturing catalytic converters in car exhaust systems.

Local exchange-traded products (ETPs) tracking the palladium price have enjoyed exceptional returns since the start of 2017.

As the tables below show, rhodium and palladium trackers are the top-performing ETPs in South Africa over every period from six months to five years:

Source: Profile Data, etfSA.co.za

The five-year numbers provide some context, showing how returns from palladium have comfortably surpassed even the high-flying US stock market since 2014.

Anyone with any experience of commodity prices will however recognise that this kind of performance is unlikely to be sustained.

If there is one certain thing about commodity prices it’s that they are highly cyclical.

The rest of the market

Looking at ETPs more broadly, 2019 was generally a good year for local investors. Only seven of the 70 index-tracking products with track records longer than one year produced negative returns over the past 12 months. This is a significant improvement from last year, when 41 ETPs on the JSE were in the red.

Read: The top-performing exchange-traded products of 2018

Many ETPs tracking local equity indices were also up more than 10% for 2019. In 2018, only four funds tracking a JSE-related index delivered even a positive return.

The exceptions last year were the Satrix Property ETF, which lost 4.3% over the 12 months to the end of December, and the Absa NewFunds Value Equity ETF, which was down 2%. The other funds to experience negative returns were those tracking African equities, African property, the price of corn, and the value of the euro and the dollar against the rand.

Apart from the ETPs tracking the prices of platinum group metals, the top performers tended to be products with international exposure. As the table below shows, these were dominated by funds tracking US stock market indices, particularly those with high tech exposure.

Of the top 15 performers, the only one tracking a local index was the Absa NewFunds Equity Momentum ETF. It produced a return almost double the 12.05% of the FTSE/JSE All Share Index for the year.

Source: Profile Data, etfSA.co.za