Stocks were on pace for another month of gains up until the end of last week when the omicron variant of COVID spooked investors and sent equity prices into the red. The S&P 500 fell less than 1% in November, while the Russell 2000 fell more than 4%. Tech stocks, on the other hand, gained more than 4% and the Nasdaq 100 returned 2% as investors rotated away from economically-sensitive cyclical stocks and back towards the growth end of the market that has acted as a safety blanket for many months now.
The markets are at that stage today where investors are cautious about the trajectory of the economic recovery but not so cautious that they want to fully take risk off the table. Record inflows continue to pour into stocks and ETFs providing a steady level of support for the markets, but defensive assets, such as utilities, consumer staples and gold, have consistently underperformed the market since the bottom of the COVID bear market last year.
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What investors have done for equities, the Fed has done for the bond market. Even though it looks like the taper is finally going to begin before the end of the year, the central bank is still adding more than $100 billion of Treasuries to its balance sheet every month. As a result, every market event which should be lifting interest rates - a firm global economic recovery or an inflation rate that has hit 6% in the United States - has failed to keep the 30-year Treasury bond yield above even the 2% level for any extended period of time since before the pandemic. While the top performing ETF list is usually dominated by equity funds, it's interesting to see that multiple Treasury funds cracked the list in November as well.
Here's the list of the top performing ETFs for November 2021.
KraneShares owns the top two spots on this list (as well as a couple other spots a little further down) with the KraneShares European Carbon Allowance ETF (KEUA) and the KraneShares Global Carbon ETF (KRBN). These two are worth discussing together because they follow similar strategies. They both provide targeted exposure to the cap-and-trade carbon allowance program by tracking the most traded carbon credit futures contracts - KEUA targeting the Eurozone and KRBN targeting both Europe and North America. As KraneShares notes on their website, the goal of climate neutrality by 2050 could make this segment of the market both a high performer and a great diversifier.
If you're looking for winning themes in November, the top spot has to belong to semiconductors. Six different semiconductor ETFs show up in the top 10, including the iShares Semiconductor ETF (SOXX), the VanEck Semiconductor ETF (SMH), the Invesco PHLX Semiconductor ETF (SOXQ), the First Trust Nasdaq Semiconductor ETF (FTXL), the Invesco Dynamic Semiconductors ETF (PSI) and the SPDR S&P Semiconductor ETF (XSD). The clear driving narrative for such performance is the global supply chain. Demand is incredibly for chips that go in any number of products, including smartphones and vehicles. As long as supply remains constrained and demand remains hot, semiconductor stocks will probably continue having the means to go higher.
Other chip-adjacent industries, including autonomous vehicles, 5G, networking and nanotechnology, were also big performers. It's not often that you see a broad sector fund squeeze its way into the top 30, but the presence of the Technology Select Sector SPDR ETF (XLK) demonstrates just how the tech sector led the market higher in the past month. The Simplify Volt RoboCar Disruption & Tech ETF (VCAR) and the iShares Self-Driving EV and Tech ETF (IDRV) benefited from the dual success of tech and clean energy last month, while the Defiance 5G Next Gen Connectivity ETF (FIVG) and the iShares Cloud 5G and Tech ETF (IDAT) enjoyed the recent focus on the infrastructure space.
I mentioned Treasuries earlier and it was the longest duration and potentially most volatile government bond funds that posted the biggest gains in November. The iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ) and the PIMCO 15+ Year U.S. TIPS ETF (LTPZ) squeaked in with gains of more than 4%. The PIMCO 25+ Year Zero Coupon US Treasury ETF (ZROZ), the largest and most well-known fund targeting this end of the Treasury market, just missed the cut but also gained 4%.
Other ETFs worth noting:
The metaverse makes its debut! The Roundhill Ball Metaverse ETF (META) launched just five months ago, but in that time has become one of the hotter products in the industry. Landing the ticker that Facebook no doubt would have wanted, META is approaching the $1 billion mark in assets and has been one of the most successful launches of 2021.
With all the attention focused on global inflation lately, it's perhaps curious that a fund focused on deflation has performed so well recently. The Quadratic Deflation ETF (BNDD) aims to benefit from lower growth, deflation, lower or negative long-term interest rates, and/or a reduction in the spread between shorter and longer term interest rates by investing in US Treasuries and options. The issuer also runs the Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL), a fund that more or less operates on the other end of the spectrum.
Given the emergence of the omicron variant of COVID, it's probably not a surprise that the ETFMG Treatments, Testing & Advancements ETF (GERM) made the list. It was actually down more than 2% on the month up through Thanksgiving before gaining about 8% in the post-Thanksgiving period.
Housing was one of the most profitable themes of November as home sales remained brisk and interest rates remained low. The iShares U.S. Home Construction ETF (ITB) gained another 5% during the month and is up more than 36% year-to-date.
The Invesco ESG Nasdaq 100 ETF (QQMG) is an interesting addition to the list considering it outperformed the Invesco Nasdaq 100 ETF (QQQM) by more than 3%. What's the difference between the two? QQMG eliminates alcohol, cannabis, controversial weapons, gambling, military weapons, nuclear power, oil & gas, and tobacco from the portfolio. That ends up avoiding just a few names out of the original 100.