With just over a month remaining in 2020, it’s accurate to say this will go down as another banner year for exchange traded funds. As of the end of October, exchange traded products listed around the world gathered $539.58 billion in new assets and yes, plenty of the best ETFs in terms of performance are part of the asset-gathering flurry.
In terms of ETF flows, fixed income funds are on a record pace this year and retail investors are pumping a record amount of cash into thematic funds and ETFs emphasizing disruptive technologies. However, as is the case in nearly every other year in the ETF industry’s existence, the top asset gatherers – ETFs adding billions or tens of billions worth of new capital – are a bland, basic group lacking many of this year’s top performers.
Here, we’ll examine 2020’s best ETFs in terms of sheer total returns. This is how I arrived at this: I screened the universe of U.S.-listed exchange traded products, which is north of 2,400, for those with year-to-date gains of at least 50%. That endeavor turned up 66 funds. I then stripped out leveraged ETFs and volatility-driven products to build a list of more practical funds appealing to a broader of swath of investors.
Not all of the best performers are included here, but the five ETFs that follow are fairly representative of what’s been working for investors in 2020.
- Alps Clean Energy ETF (BATS:ACES)
- Ark Next Generation Internet ETF (NYSEARCA:ARKW)
- Ark Genomic Revolution ETF (BATS:ARKG)
- Global X MSCI China Consumer Discretionary ETF (NYSEARCA:CHIQ)
- Roundhill Esports & Digital Entertainment ETF (NYSEARCA:NERD)
Alps Clean Energy ETF (ACES)
Expense ratio: 0.65%, or $65 annually on a $10,000 investment
Investors paying even casual attention to industries viewed as beneficiaries of a change in occupant at 1600 Pennsylvania Ave. likely heard plenty about renewable energy and the ALPS Clean Energy ETF certainly gets a fair amount of praise, rightfully so, in that conversation. ACES more than doubled this year and yes, some of that run is attributable to positive polling numbers for then-Democratic nominee Joe Biden and the result of him now being president-elect.
The ALPS ETF is up 31% over the past 90 days and 18% over the past month. ACES isn’t alone among clean energy ETFs delivering astounding 2020 showings. This list could be comprised of more than dozen such funds, underscoring strength in the group.
ACES makes the cut as the renewable energy representative here because of its depth. Rather than emphasizing a singular concept, ACES features exposure to seven renewable energy themes, including smart grid, solar and wind.
A caveat with ACES and any of its peers is that there’s probably been too much made of Biden’s victory and its impact for this industry. That’s not a political slight, but rather a reminder that catalysts for ACES include corporate adoption of environmentally friendly energy sources, states and cities setting their own renewable agendas and governments outside the U.S. – think Europe, China and Japan, among others – driving consumption of wind, solar and more.
Ark Next Generation Internet ETF (ARKW)
Expense ratio: 0.76%
ARK Investment management issues five actively managed ETFs and all of them could be on this list. Specific to the ARK Next Generation Internet ETF, well, let’s just say there are internet ETFs and then there’s ARKW. This ARK fund is up 124% year-to-date. That’s an advantage of roughly 80% over the Dow Jones Internet Composite Index.
Speaking of advantages, ARKW has that because it’s actively managed, meaning it doesn’t have to conform to standard interpretations of what makes an internet ETF. For example, Tesla (NASDAQ:TSLA) is this fund’s largest holding at a weight of nearly 10%. ARKW also features exposure to bitcoin, fintech equities and videogame makers – assets that typically don’t reside in traditional, passive internet funds.
Bottom line: the internet itself is disruptive, but ARKW’s roster is more levered to true disruptors than competing strategies and its streaming entertainment exposure is just one example of that trend.
“Offering thousands of channels for a seemingly low price, linear TV has not kept up with the times. Modern viewers want modern options,” said analyst Nicholas Grous in a recent note. “As a result, viewers have begun to ‘cut the cord’, canceling their linear TV services at an accelerating rate during the last few years. Without sports, the pace of cord cutting intensified during the pandemic.”
Ark Genomic Revolution ETF (ARKG)
Expense ratio: 0.75%
The ARK Genomic Revolution ETF is one of the other ARK funds among this year’s best ETFs and it is, quite simply, a star among health care funds. A 2020 gain of almost 130% confirms as much. That’s impressive, but this isn’t a one-off even for the genomics fund.
Over the past three years, the actively managed ARKG is higher by 226.7% while the S&P 500 Health Care Index and the Nasdaq Biotechnology Index are up 40.6% and 35.2%, respectively.
Under any circumstances, ARKG’s 2020 showing is impressive, but that’s even more so when considering the fund isn’t excessively allocated to companies working on Covid-19 vaccines. Rather, ARKG is driven by companies engaged in bioinfomatics, CRISPR, stem cell research and targeted therapeutics, among other growthier corners of the healthcare universe.
Only time will tell if ARKG’s recent success will be replicated, but what isn’t up for debate are sound fundamentals. For example, genomics costs are declining, making the treatments and therapies available in this space more accessible to a broader range of patients. Second, genomics companies are at the epicenters of some compelling advancements, including dark read DNA sequencing and precision medicine.
Some forecasts call for the genomics segment to deliver a compound annual growth rate (CAGR) of 9.3% through 2025. If that estimate is accurate, ARKG should soar.
Global X China Consumer Discretionary ETF (CHIQ)
Expense ratio: 0.65%
With China ranking as one of this year’s top-performing major equity markets, it’s not surprising that an array of China funds merit best ETFs consideration. The Global X China Consumer Discretionary ETF is up 92% year-to-date, making it one of the more prominent choices to consider.
CHIQ is trouncing equivalent U.S.-focused rivals and the Global X has some not-so-secret sauce in the form of a 9.34% weight to Nio (NYSE:NIO). With that stock on a torrid pace, having one of the largest allocations to among all ETFs is a feather in the CHIQ cap, but the fund’s impressive performance is also a testament to the growth of China’s online retail market.
In fact, data confirm that investors looking for growing retail sales would do well to evaluate a fund like CHIQ.
“EM economies are becoming increasingly dynamic, transitioning away from purely commodity exports and low-cost manufacturing to high tech, services, and consumption-driven growth,” according to Global X research. “Between 2000 and 2015, EMs populations grew by 21% while retail sales per capita were nearly 3x higher, rising from $525 to $1,490.”
Roundhill Esports & Digital Entertainment ETF (NERD)
Expense ratio: 0.5%
All of the video game ETFs could be included on this list, but NERD makes the cut for a simple reason: up 76.63% year-to-date, it’s the best of the bunch. NERD is also being featured here because relative to its rivals, it’s the purest ETF play on gaming.
Much of that purity is derived from NERD’s index, which has qualifiers from entry whereas other benchmarks in this space skew toward traditional technology stocks.
“This classification includes, but is not limited to: video game publishers, streaming network operators, video game tournament and league operators/owners, competitive team owners, and hardware companies,” according to Roundhill.
Of course, NERD features exposure to some of the familiar names among game software publishers, but a significant portion of the allure here is the ETF’s inclusion of international equities and up-and-coming, less heralded gaming equities.
And there’s the esports exposure. Television viewership of those competitions will increase 11.7% this year and is on pace to eclipse all major U.S. sports except for the NFL.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.