What are we looking for?
Exchange traded funds (ETFs) that did well in the third quarter. Given that stock markets took a drubbing, we looked for ETFs that came up smelling like roses.
The screen
We ranked the 15 biggest gainers among Canadian-listed ETFs, but excluded leveraged ETFs.
What did we find?
Gold, currency, bond and actively managed fund ETFs.
The unhedged version of Claymore Gold Bullion ETF led the pack with a 16-per-cent gain as gold surged to a record high of over $1,900 (U.S.) an ounce in September before retreating. Meanwhile, Horizons U.S. Dollar Currency ETF rose 8.6 per cent as the greenback strengthened as a safe-haven currency.
Long-term bonds did well with BMO Long Federal Bond ETF gaining 11.9 per cent. Its holdings benefited from the Bank of Canada decision to hold rates steady until next year, and got an additional boost from a "flight to quality" amid volatile stock markets, said Alfred Lee, investment strategist for BMO ETFs at Bank of Montreal.
HAP Seasonal Rotation ETF , which moves its assets among various sectoral ETFs to take advantage of recurring annual patterns in the market, rose 4.8 per cent. This actively managed ETF had a big chunk of its assets in cash, but made some money from short-term trades in gold and gold bullion ETFs. "As things started to deteriorate, we got rid of them," said Don Vialoux, a research analyst for JovInvestment Management Inc.
His ETF also held utilities and health care ETFs (which got hit in the market downturn) but made money by shorting – or selling – steel and transportation ETFs.
As the quarter ended, the ETF was nearly all in cash. Mr. Vialoux turned bullish on Oct. 5, and began investing again. Because markets have run up so fast, he is waiting to deploy his remaining 60-per-cent cash position after the "slight pullback" in the markets he expects as companies report third-quarter results.
The U.S. and Canadian markets have historically outperformed from Oct. 28 to May 5. "This year our entry point came in earlier than usual" because of buy signals from technical indicators, he said. "Technology, consumer discretionary and agriculture tend to do well this time of year … The intention is to be fully invested by Oct. 28."