Top Performing ETFs of 2016

Matt Thalman - Contributor - ETFs

With 2016 coming to an end, let's take a look at a few of the top performing Exchange Traded Funds of 2016. With the major indexes up for the year; Dow Jones Industrial Average (DJI) up 14%, the S&P 500 (SP500) up 10.75%, and the NASDAQ (COMP) up 9%, one may think the top performing ETFs would be up just slightly more than that. But, that's not the case by a long shot.

The top 2016 ETFs are all up more than 100% year-to-date!

So, let's take a look at what performed well this past year and whether or not their performance will continue moving forward.

Shares of Direxion Daily Regional Banks Bull 3X Shares (PACF:DPST) have risen more than 114% year-to-date. The ETF focuses on US regional banking stocks but leverages its bullish exposure three times. What is interesting is that while DPST is up 114% year-to-date, it's up 107% over just the last three months. In the last three months the Presidential Election took place and Donald Trump's surprise victory has sent stocks in a number of industries higher. The banking industry had been demonized since the financial crisis and government regulation has really held back the industry. Trump told voters during the campaign that he would de-regulate, and many believe that includes the banking industry.

Trump though can't take all the credit for the higher banks stocks, the Federal Reserve's decision to increase interest rates has also helped banks. A high-interest rate environment is good for banks because they can then increase the spread between what they pay for money and what they lend it out at. Investors should be watching this industry moving into 2017 because we already know interest rates are going to keep moving higher and if Trump can de-regulate, that would just be the cherry on top.

Another big winner was the Direxion Daily Semiconductor Bull 3x Shares (PACF:SOXL) which is up 125% year-to-date. The ETF focuses on companies primarily involved in the design, distribution, manufacture and sales of semiconductors. Some of the ETFs top holding include NVIDIA, Intel, Cirrus Logic, Advanced Micro Devices, Micron Technology, Qualcomm, and Texas Instruments just to name a few. NVIDIA was one of the best-performing stocks in the market last year while all the big chip makers moved higher.

In 2016 investors the connected world is here to stay and the semiconductor industry is only going to get more and more important moving forward. Chips are no longer just used in computers, but Large data farms, self-driving cars, smart homes and appliances, phones, toys, the list goes on and on. The need for this industry has never been greater and I believe this trend is just getting started. Investors should consider owning a portion of the industry in 2017.

Another industry that jumped higher in 2016 was metals and mining. That helped shares of SPDR S&P Metals and Mining ETF (PACF:XME) increase by 110% year-to-date. The ETF owns S&P 500 metal and mining companies. Currently, it holds 26 stocks with the top ten representing 55% of assets. Top holdings include AK Steel, United States Steel, Cliffs Natural Resources, Steel Dynamics, and Freeport-McMoRan.

Similar to DPST, XME has risen dramatically over the last three months. These stocks have certainly been helped with Donald Trump being elected President. Trump has told supporters that restrictions and regulations should be lifted from the industry, which many believe, will help these companies become more profitable in the future.

Unlike the previous two ETFs, XME is not a leveraged ETF, which can be a good thing. Furthermore XME is currently the only ETF that tracks the US Metals and Mining segment. This is certainly an industry that could continue to climb or fall in 2017. Investors should use caution before investing.

All in all, 2016 has been a good year for investors, especially those who were patient during the summer and stayed in the market all year long. The leveraged ETFs mentioned above performed strongly, but investors need to remember these products aren’t intended to be own for long periods of time due to their cost structure. Lastly, don't let past performance affect your decision on future investments. Just because some invest did well in the past, means nothing about how it will do in the future.

Check back soon for the list of some of the worst-performing ETFs in 2016.

Matt Thalman Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor held a long positions in Intel at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.