Exchange-traded funds (ETFs) hold a collection of securities—such as stocks—that often track an underlying index. While they are similar to mutual funds in some ways, ETFs are different in that they are listed on exchanges and can be traded throughout the day like traditional stocks.
In recent years, ETFs have become immensely popular with investors for two major reasons:
- They provide an easy access point to a wide variety of sectors, industries, and strategies.
- They tend to minimize many of the risks inherent in investing in individual stocks.
- The best exchange-traded funds (ETFs) by one-year trailing total returns have dramatically outperformed the broader market over the past year.
- The ETFs with the best one-year trailing total returns are BDRY, GRN, and KRBN.
- The top holdings of the first ETF are freight futures contracts, and the top holdings of the last two ETFs are carbon credit futures contracts.
There are 1,604 ETFs that trade in the United States, excluding leveraged and inverse funds as well as those with under $50 million in assets under management (AUM). The S&P 500 has provided a total return of 28.9% over the past 12 months, as of Dec. 14, 2021.
All three of the top ETFs by one-year trailing total returns dramatically outperformed the S&P 500 over the past year. The best-performing ETF, based on performance over the past year, is the Breakwave Dry Bulk Shipping ETF (BDRY).
We examine the best three ETFs below. All numbers below are as of Dec. 15, 2021.
- Performance Over One-Year: 239.6%
- Expense Ratio: 3.76%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 359,614
- Assets Under Management: $55.6 million
- Inception Date: March 22, 2018
- Issuer: ETF Managers Group
BDRY is structured as a commodity pool, combining investor contributions to invest in near-dated freight futures contracts on dry bulk indices. The fund holds freight futures that have a weighted average of approximately three months to expiration. It is designed to profit from increases in those futures beyond what is already priced into the market.
BDRY provides pure play exposure to the dry bulk shipping industry, which plays an instrumental role in global commodity markets and supply chains. The ETF’s price has soared over the past year, as global supply chains have faced increasing strain amid the pandemic. Those supply chain bottlenecks caused prices to ship a 40-foot container from China to the U.S. West Coast to soar tenfold in August 2021 compared to pre-pandemic levels.
Shipping costs have declined substantially since the summer, suggesting that demand is finally beginning to ease. However, congestion at ports remains a big problem for many shippers.
- Performance Over One-Year: 149.9%
- Expense Ratio: 0.75%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 75,949
- Assets Under Management: $125.1 million
- Inception Date: Sept. 10, 2019
- Issuer: Barclays Capital
GRN is structured as an exchange-traded note (ETN), a type of unsecured debt security that tracks an underlying index of securities and trades like a stock on a major exchange. ETNs are similar to bonds but do not make interest payments.
GRN provides exposure to the Barclays Global Carbon II TR USD Index. The index tracks the price of carbon measured by the return of futures contracts on carbon emissions credits from the world’s two major emissions-related mechanisms: the European Union Emission Trading Scheme and the Kyoto Protocol’s Clean Development Mechanism. Carbon emissions credits allow the holder of the permit to emit a certain amount of carbon dioxide or other greenhouse gases. GRN enables investors to benefit from an increase in the price of these credits by holding futures contracts for those credits.
The recent 2021 United Nations Climate Change Conference in Scotland took several steps to advance trading in carbon markets. Governments from around the world agreed to preliminary rules for how carbon credits could be traded across international borders. The agreement, called COP26, may boost investor interest in carbon credits.
- Performance Over One-Year: 104.7%
- Expense Ratio: 0.79%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 640,626
- Assets Under Management: $1.5 billion
- Inception Date: July 30, 2020
- Issuer: China International Capital Corp.
KRBN tracks the IHS Markit Global Carbon Index, which gauges the performance of the most-traded carbon credit futures contracts. The index covers the following cap-and-trade programs: the European Union Allowances (EUA); the California Carbon Allowances (CCA); and the Regional Greenhouse Gas Initiative (RGGI).
Like GRN, this ETF provides exposure to futures contracts for carbon emissions credits. This allows investors to diversify their portfolios into a separate asset class while also providing benefits from rises in the price of carbon credits.
The price of carbon credits has more than doubled over the past year. The rapid rise in prices has triggered a wave of cash pouring into funds that invest in carbon credits. Much of the optimism is being fueled by tighter regulation over carbon emissions and investor pressure on companies to reduce their carbon emissions.
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