As the third quarter of 2019 comes to an end, none of the exchange-traded funds in InvestorPlace’s Best ETFs of 2019 contest have changed their position in the rankings from Q2. Vince Martin’s pick — the iShares U.S. Home Construction ETF (BATS:ITB) — still leads the race, with my pick — Pacer Benchmark Data & Infrastructure Real Estate ETF (NYSEARCA:SRVR) — coming shortly behind it in terms of year-to-date gains.
At the end of Q2, both of these ETFs were tied, but now ITB has a small-but-clear lead over the whole pack.
There have been notable moves in some ETFs throughout the quarter, but, interestingly, the most significant movement has come from the lead performers. With all of that in mind, let’s take a closer look at what has happened to each of these funds over the past few months and what might lie ahead for each at the end of the year.
Here are InvestorPlace’s best ETFs of 2019, in ascending order of year-to-date gains through the end of September.
Best ETFs for 2019: iShares U.S. Healthcare Providers ETF (IHF)
Investor: Todd Shriber
Expense Ratio: 0.43%, or $43 annually per $10,000 invested
Year-to-Date Gains Through Q3: -2%
At the start of the year, Todd Shriber picked the iShares U.S. Healthcare Providers ETF (NYSEARCA:IHF) to win the contest for 2019. He based his thesis on an assumption that the political landscape would prove beneficial to the holdings in IHF and it would rise as a result.
That hasn’t been the case, and it likely won’t be the case for the rest of the year.
As Shriber notes in his latest update on the healthcare ETF: “Much of IHF’s fortunes, near- and long-term, will be determined by UnitedHealth. That stock’s prospects into year end are murky, which will penalize IHF in the best ETFs competition, but it bodes well for patient investors.”
Although IHF continues to suffer thanks to its heavy allocation in UnitedHealth (NYSE:UNH) and a few other politically influenced holdings, Shriber still maintains that in the grand scheme of things, there is hope for the ETF to rise back into the green. It just probably won’t happen this year.
iShares MSCI Mexico Capped ETF (EWW)
Investor: Ian Bezek
Expense Ratio: 0.47%
YTD Gains: 4%
It’s no secret that many ETFs based in international stocks and emerging markets have struggled this year and Bezek’s pick, the iShares MSCI Mexico Capped ETF (NYSEARCA:EWW), is no exception to this world market strife.
As an ETF based in Mexican stocks, EWW has seen both good and bad times this year. But recently, EWW was heavily dented because, according to Bezek, investors made a connection between Argentina’s political structure (and subsequent recent economic turmoil) and Mexico’s.
Specifically, Bezek writes that:
“Argentina’s political meltdown scared investors in EWW, at least briefly. After all, Mexico elected a left-wing government of their own in 2018. Could Mexico follow Argentina and Venezuela down a dark spiral?”
While he doesn’t think investors should be spooked and the ETF has managed to make a recovery since the political fears took over, at a YTD gain of 4%, it’s still down 1% from its Q2 YTD gains of 5%. However, this doesn’t deter Bezek from having faith in the Mexican economy or Mexican stocks: “Whether you own individual Mexican stocks or the EWW ETF, the future is bright … the [Mexican] economy is reasonably healthy, and there’s plenty of room for stimulus going forward.”
iShares Core MSCI Emerging Markets ETF (IEMG)
Investor: Jim Woods
Expense Ratio: 0.14%
YTD Gains: 4%
As mentioned earlier, many theories regarding the best ETFs to buy this year were based in international stocks or emerging markets having success. But since the trade war between the U.S. and China has distorted investors’ optimism in the future of the global economy, Jim Woods’ selection for the contest, the iShares Core MSCI Emerging Markets ETF (NYSEARCA:IEMG), hasn’t been as hot as he and other investors might have expected.
Add to the trade war headwind the fact that “the continued rise in the value of the U.S. dollar vs. rival foreign currencies” has muddied the picture for emerging markets and it’s no wonder that IEMG has struggled in 2019.
But not all hope is lost.
As Woods puts it, “I’m still of the opinion that emerging markets … represent a value play of sorts for investors looking to gain long-term alpha. And while this thesis has yet to pan out in 2019, I remain long IEMG … as the overall trend in international equities remains bullish.”
iShares MSCI Emerging Markets ETF (EEM)
Investor: Readers’ Choice
Expense Ratio: 0.67%
YTD Gains: 5%
Much of the same idea behind Woods’ selection of IEMG is reflected in our reader’s choice of iShares MSCI Emerging Markets ETF (NYSEARCA:EEM) for the best ETF of 2019. As such, EEM has suffered for mostly the same reasons as IEMG has suffered. But despite the “doomsome” outlook many investors might have for stocks in emerging markets right now, there’s reason for hope.
As InvestorPlace Web Editor Sarah Smith uncovered in her interview with Niagara University Economics Professor Dr. Tenpao Lee, “while the short-term effects of the trade war are hurting Chinese stocks and EEM, he believes the next two or three years will bring growth — potentially at a massive level — to China-based emerging market funds.”
Given that a sizable allocation of EEM is dedicated to Chinese stocks (nearly 32%), investors have reason to be optimistic about the ETF, assuming Lee’s assessment is accurate. As Smith points out, our readers might have had the right thesis, it just might not have been the right year for it to become one of the best ETFs.
SPDR Gold Shares (GLD)
Investor: Kent Thune
Expense Ratio: 0.4%
YTD Gains: 15%
The key behind Kent Thune’s choice — SPDR Gold Shares (NYSEARCA:GLD) — for the best ETFs of 2019 contest is all based in one word: defense. And as one of the go-to gold ETFs, it’s no wonder that would be the case behind a play in GLD this year.
Although the gold ETF didn’t start the year off at a high spot in the rankings — it was in tenth place in YTD gains through Q1 — it has since started to flex its muscle, making its way down to the No. 6 spot, where it has remained through Q2 and Q3.
And Thune is optimistic that it can continue to power higher throughout the rest of 2019: “GLD may still lag the major market indices and a few of the leading sectors. But the real story is that GLD has been an outstanding diversification tool since the end of Q3 2018 and will likely remain a smart holding through 2020 and beyond.”
Maybe you shouldn’t expect it to be the “best ETF” in the contest at the end of 2019, but you should expect it to remain a steady choice as faith in the U.S. economy and the world in general starts to become a little more squirrelly.
Financial Select Sector SPDR Fund (XLF)
Investor: Dana Blankenhorn
Expense Ratio: 0.13%
YTD Gains: 18%
When it comes to Dana Blankenhorn’s bank ETF play — Financial Select Sector SPDR Fund (NYSEARCA:XLF) — he flat out says that he’s “not going to win the ETF Contest this year.”
But that doesn’t mean it has been a bad ETF to buy in 2019, nor does it mean that all hope is lost for this financial ETF. “XLF isn’t doing badly given the interest rate environment — with the Federal Reserve having already made two rate cuts and poised for a third in December,” says Blankenhorn. “In short, I’ve missed on the macro trend, but I’m in good shape.”
Part of his optimism for XLF is that its holdings will be at the forefront of software-based changes in the financial industry and it will see a rise as result. And while that rise might not be massive enough to topple the competition in this year’s ETF contest, owning XLF now might prepare you for an inevitability that Blankenhorn sees coming … the inevitability “that software is swallowing the world.”
Global X Robotics & Artificial Intelligence ETF (BOTZ)
Investor: Tom Taulli
Expense Ratio: 0.68%
YTD Gains: 20%
Unless you’ve been living under a rock over the past decade, then chances are good that you know some of the thesis behind Tom Taulli’s selection of the Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ). This ETF is comprised of holdings that are leading us to what could be a fully AI-operated future akin to what we saw in the 2008 Pixar film “Wall-e.”
Slight exaggeration aside, what this really means is that BOTZ includes companies that are responsible for creating the technology that makes AI possible as well as companies that intend to take advantage of developments in AI.
Although Taulli’s pick hasn’t managed to make it into the top three ETFs to buy this year, its long-term prospects are undeniable. Consider that researchers from various firms believe “AI will add a whopping $15.7 trillion in value to the global economy by 2030 … [and] spending on the technology will go from $24 billion in 2018 to $77.6 billion by 2022.”
That’s tons of potential upside for many of BOTZ’s high-tech holdings.
Invesco Water Resources ETF (PHO)
Investor: James Brumley
Expense Ratio: 0.6%
YTD Gains: 30%
This year, James Brumley based his thesis on an ETF that focuses on one of the key components of life: water.
In a previous write-up, he describes the “[t]he short version of a long story” behind his selection of the Invesco Water Resources ETF (NASDAQ:PHO) as being the fact that “America’s entire water-management system is a mess.” While Brumley asserts that most of PHO’s holdings are not entirely based in water-management systems, all of them stand to benefit from these flaws as they will reap benefits as we continue to improve our flawed water-based infrastructure in the years ahead.
Like some of the other ETFs on this list, the PHO ETF can function as a tactical defensive play, while also giving investors a taste for growth. In Brumley’s words, “I’m still confident in PHO despite my lack of confidence in the overall market for the rest of the year … I still like it because we’ve still only scratched the surface of solving the problem of an ever-shrinking supply of water.”
Pacer Benchmark Data & Infrastructure Real Estate ETF (SRVR)
Investor: Robert Waldo
Expense Ratio: 0.6%
YTD Gains: 39%
The Pacer Benchmark Data & Infrastructure Real Estate ETF (NYSEARCA:SRVR) was my pick for InvestorPlace’s Best ETFs of 2019 contest. And over the past three quarters, it has been one of the top performing names out of the bunch.
I picked it for similar reasons that Brumley picked PHO: It has defensive properties while also having holdings based in a greater long-term catalyst.
But unlike the life-sustaining catalyst behind PHO, the catalyst behind the SRVR ETF is a leap in technology thanks to the upcoming 5G revolution. As I pointed out in my latest update on the ETF, “SRVR is one of the best ETFs you could buy this year. Because regardless of trade war concerns or a recession, the holdings in this real estate investment trust (REIT) ETF mainly focus on infrastructure that’s essential to the daily operations of our technologically connected world.”
Since Q2, SRVR has climbed 12% more to reach a total 39% YTD gain through the end of September. However, it has since taken a slight hit amid current market turmoil. While it’s not entirely immune to market volatility, let alone the inevitable October madness that haunts the markets, I still have faith in its core stability as well as the general investment thesis I made for it at the end of 2018.
iShares U.S. Home Construction ETF (ITB)
Investor: Vince Martin
Expense Ratio: 0.42%
YTD Gains: 44%
As of this writing, the gap between the YTD performance of Vince Martin’s selection for the contest — iShares U.S. Home Construction ETF (BATS:ITB) — and the SRVR ETF is widening. At the end of Q2, both ETFs were tied — now there’s a 5% difference in terms of performance with ITB’s return at 44% since the start of the contest (SRVR’s return in the same timeframe is 39%).
According to Martin, one of the key reasons behind ITB’s strength this year is that while it’s still relatively cheap, “the drivers of the upside so far this year still look intact.”
As Martin explains:
“Economic figures look good. Consumer confidence is high. There’s still a need for new housing supply, particularly at reasonable prices. And lower interest rates add a potential catalyst for new housing sales in the coming quarters.”
But there is a catch to its longer-term success. Martin admits that ITB could face a few headwinds soon if economic conditions sour or political strife ensues in the 2020 U.S. presidential election. Still, despite the potential risks ahead, he believes that the construction ETF can win the contest, and that it is a solid long-term play.
Whatever happens, one thing is clear — the race for the No. 1 spot for best ETF of 2019 is certainly much more intense now as the gap between SRVR and ITB’s performance widens.
Robert Waldo is an assistant editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.