Although none of the 11 GICS sectors fared particularly well in 2018, the materials sector faced some of the harshest headwinds. Companies aiming to develop and process raw materials were battered by the uncertainty surrounding trade battles between China and the U.S. and by a slowdown in the growth of the global economy. Aside from a few standout stocks, most of the materials sector lost money in 2018.
Because of the dismal performance of most materials names, exchange-traded funds focused on that sector also tended to perform poorly in 2018. Indeed, the average materials-focused ETF generated negative returns for the year. On the other hand, the small number of materials ETFs which employ a shorting strategy in order to bet against the sector were among the standouts for the year. Each of the top five performers among materials sector ETFs for 2018 utilized a bearish strategy of this kind. Below, we'll take a closer look at each of these top performing materials ETFs. Each ETF will be compared to the S&P 500 Materials Index as a benchmark, which saw an average return of -17.7%
1. ProShares UltraShort Basic Materials (SMN)
Returns for 2018: +35.4%
2. ProShares Short Basic Materials (SBM)
Returns for 2018: +20.7%
3. ProShares UltraShort Gold Miners (GDXS)
Returns for 2018: +8.1%
4. Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST)
Returns for 2018: +7.1%
5. Direxion Daily Gold Miners Index Bear 3X Shares (DUST)
Returns for 2018: +5.6%
ProShares UltraShort Basic Materials
The top-performing materials ETF of 2018 was the ProShares UltraShort Basic Materials fund (SMN). SMN is essentially the opposite of the basic materials ETF IYM, providing -2x exposure to the market-cap-weighted index of materials names. Like many leveraged inverse funds, SMN operates on a timescale of a daily return calculation. For that reason, investors tend to hold SMN for no longer than a single trading day, or else they have to rebalance their positions in order to protect against skewed returns over a longer period of time. Nonetheless, for a leveraged wager against the Dow Jones U.S. Basic Materials Index, SMN provides a strong option. It was up 35.39% across 2018.
SMN was founded in January of 2007 and carries an expense ratio of 0.95%. It is a small fund, with under $8 million in assets under management.
ProShares Short Basic Materials
The ProShares Short Basic Materials ETF (SBM) is essentially the little brother of SMN. Rather than provide -2x exposure to the Dow Jones U.S. Basic Materials Index, SBM provides non-leveraged inverse exposure instead. Like SMN, SBM provides inverse of returns on a daily basis, meaning that it is also not typically held for longer than a single trading day. SBM provided overall returns of 20.69% for 2018.
SBM was founded in March of 2010 and, like SMN, carries an expense ratio of 0.95%. The fund has just over $1 million in assets under management as of this writing.
ProShares UltraShort Gold Miners
The number three position on the list of top performers among materials ETFs for 2018 also goes to a fund by ProShares. The issuer's UltraShort Gold Miners fund (GDXS) netted returns of 8.13% for 2018. As the name suggests, the fund focuses on companies that mine gold. It also includes global silver mining names as well. The fund provides daily -2x exposure to the NYSE Arca Gold Miners Index. ProShares utilizes derivative contracts to facilitate this exposure, resetting leverage every day. Like the two ETFs listed above, this means that GDXS is not intended for investments longer than a single day in length. Most investors use it for intra-day trading only.
GDXS was launched in February of 2015 and carries an expense ratio of 0.95%. As of this writing, it has more than $2.3 million in its asset base.
Direxion Daily Junior Gold Miners Index Bear 3X Shares
Coming in fourth place for overall returns in 2018 is the Direxion Daily Junior Gold Miners Index Bear 3X Shares fund (JDST). JDST offers daily -3x exposure to a host of junior mining companies from both emerging and developed markets. The fund tracks the Market Vectors Junior Gold Miners Index. This index is cap-weighted and includes global mining companies earning at least 50% of their revenue from the mining of either silver or gold. Because the companies included are "junior," they are considered small-caps overall. Like the other funds on this list, JDST's exposure resets every day, making it a good option for intra-day trading. In 2018 the fund returned 7.10% overall.
JDST was launched in October of 2013 and has an expense ratio of 1.10%. The fund has assets under management of more than $52 million as of this writing.
Direxion Daily Gold Miners Index Bear 3X Shares
With overall returns of 5.62%, the Direxion Daily Gold Miners Index Bear 3X Shares fund (DUST) captured the final place in our top 5 list of materials ETFs for last year. This fund is very similar to JDST, the primary distinction being that it tracks a different index. Instead of focusing on a juniors index, DUST provides a -3x exposure to the NYSE Arca Gold Miners Index, a group of roughly 30 companies around the world focused on precious metals mining.
DUST was launched in December of 2010 and has an expense ratio of 1.08%. It is a larger fund than the others on this list, with more than $108 million in assets under management.