With indexes near all time highs, lots of stocks and ETFs are looking good, at least on a short-term basis. But what about longer-term investments? Here is the technical outlook of the top performing ETFs over the last five years, but I've added in a few additional criteria so the funds are more likely to be "investment worthy." The first criteria is an expense ratio below 0.5%, which keeps the cost of owning the fund low. All the ETFs have assets greater than $150M, to avoid the possibility of the fund closing and forcing investors to re-allocate invested funds. A five year time frame was chosen to capture both short and longer performance, and it turns out all these funds have had greater than 13% returns over the time frame. That figure is actually quite impressive considering the massive sell-off that occurred in 2008 and 2009.

SEE: How To Pick The Best ETF

iShares Nasdaq Biotechnology (Nasdaq:IBB) is the top performing fund over the last five years, given the criteria. According to Reuters, it has $3.1B in net assets, a 0.48% expense ratio and a 18.47% return over five years. Despite about a 15% pullback in May and early June 2013, the ETF looks to be on the recovery path and the uptrend remains in tact. Technical projections place a target near $203, or about 14% higher from the current $178.40 level. In terms of risk, a drop back below $169 signals a further decline, but buying opportunities exist all the way down to $134. Below $134 though, the uptrend is unlikely to resume and I wouldn't expect to see new highs anytime soon.



iShares Dow Jones US Pharmaceuticals (NYSE:IHE) has $458.6M in net assets, a 0.47% expense ratio and a 17.88% five-year return. Over the last two years, getting into the fund at a "cheap" price has been nearly impossible as it continues to move higher, with pullbacks of more than 10% being exceedingly rare. The target for this ETF is $110, so I do think there is still more room to the upside. A drop below $98.83 (the June 6 low) means a further price slide is likely. From a longer-term perspective though, the fund is a buy all the way down to $84. If the price drops below $84, a downtrend is already likely underway though.

SEE: An Inside Look At ETF Construction



Vangard Consumer Discretionary (NYSE:VCR) has $832M in net assets, an expense ratio of 0.14% and a five-year return of 14.48%. From a low of $52.47 in 2011 to a May 2013 high of $93.39, the uptrend continues to push on. Similar to the other ETFs mentioned prior, pullbacks have been minimal over the last two years, giving few chances to get in at a discounted price. The weekly chart shows a very sharp rise since 2009; this trajectory is unsustainable long term, but I still think a target of of $97 to $98 is possible this year. If the ETF dips below $88.64 (the June 6 low), it warns of a short-term price decline. Down to $81 I see the fund as a buy, but if it drops below that I'd avoid it or get out, since an even more severe decline is likely underway.



Unlike the sector funds discussed above, the Guggenheim S&P 400 Pure Growth (NYSE:RFG) is based more on a strategy. It only invests in S&P MidCap 400 companies with strong growth characteristics. The fund has $635.2M in net assets, a 0.35% expense ratio and a 13.06% five-year return. The target for the fund is $114 to $115. Price drops below $101, $97, $90 or $86 provide short-term warnings that further declines are underway. Due to the strong uptrend though, as long as the price remains above $81 this ETF is providing buying opportunities. Take a step back if a breach of $81 occurs, as downside risk becomes too great to warrant buying into a severely declining market.

SEE: Interpreting Support And Resistance Zones



The Bottom Line
With ETFs, fancy isn't necessarily better. These four funds offer low expense ratios and have been solid performers. When the market is rising, getting into an ETF such as a sector fund is a simple way to attain a basket of stocks that capitalize on market conditions. There is always the possibility of a correction or a big slide. Corrections represent buying opportunities in the uptrend, but if that correction drops too far, it warns that a downtrend is likely underway.

Charts courtesy of stockcharts.com

At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.

Related Articles
  1. Options & Futures

    A Guide To Investing In Consumer Staples

    These companies may not be flashy but they offer investors structure and diversification.
  2. Options & Futures

    Going All-In: Comparing Investing And Gambling

    People often compare stocks to gambling, but how close are they really?
  3. Investing

    Take Control With Investing Absolutes

    Uncover the three things most good stocks have in common: performance, profitability and value.
  4. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares US Basic Materials

    Learn about the iShares US Basic Materials exchange-traded fund, which invests in the equities of chemicals, metals and industrial gas companies.
  6. Chart Advisor

    Big Double Top Patterns On the Verge of Breaking

    These stocks have created big double top chart patterns, and are on the verge of breaking the patterns to the downside--a bearish signal.
  7. Mutual Funds & ETFs

    ETF Analysis: Ultra Oil & Gas

    Find out more about the ProShares Ultra Oil & Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations for the fund.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  10. Investing Basics

    A Primer On Investing In The Tech Industry

    The tech sector can provide fantastic returns for investors with a little know-how in the field.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Middle Market

    Definition of middle market
  3. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  4. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
  5. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  6. Fintech

    Fintech is a portmanteau of financial technology that describes ...
RELATED FAQS
  1. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  2. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  3. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!