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The Five Best ETFs of 2016

Examining the best ETFs of 2016 is a way to gain insight into what sectors and markets demonstrated uncanny strength in a topsy-turvy year for stocks.

What is an ETF or Exchange Traded Fund?

Stacks of coins with the letters ETF isolated on white background

Photographer: Lim Yong Hian

We spend a lot of time at Cabot Wealth talking about what is happening with the stock market and certain stocks. But there are times when it’s good to reflect and take measure of what has happened. The end of the year is a natural time to do that. So I thought I’d look back on some of the best ETFs of 2016.

Why ETFs? Because fund performance gives us an insight into which segments of the market showed strength in 2016. Exploring the best ETFs can be pretty revealing about what was going on in the global economy—and, by proxy, stock markets around the world.


So, barring any abrupt and sharp downturns these last few days of the year, here are five of the best ETFs of 2016—and why each performed so well.

Best ETFs of 2016 #1: VanEck Vectors Steel ETF (SLX): +97%

Two big things happened for the U.S. steel industry this year.

First, the Commerce Department imposed anti-dumping tariffs on steel imports from places like China, India and Korea after years of those countries selling their steel exports well below cost in America. The tariffs (as high as 266% for Chinese cold-rolled steelmakers) were a breath of fresh air for U.S. steel producers such as U.S. Steel (X) and Steel Dynamics (STLD), both of which are SLX holdings. And investors have swarmed to steel stocks.

The second catalyst for the steel industry came just a month ago, when Donald Trump was elected President. Trump has vowed to improve America’s infrastructure—he plans to spend $1 trillion over 10 years to do so—and that’s good for companies that manufacture steel used in high-rise buildings, offices, hospitals, railroads, highways, tunnels, bridges, piers, etc.

Since Trump was elected, the SLX ETF has jumped from 34 to as high as 43 (though it’s pulled back since)—outpacing the jump in the S&P 500 by nearly five-fold.

Best ETFs of 2016 #2: VanEck Vectors Gold Miners (GDX): +41%

2016 was a nice bounce-back year for gold, at least until recently. The price of gold rose above $1,350 an ounce for the first time since early 2014 after starting the year at six-year lows.

And when gold prices rise, gold stocks rise even further. Thus, the GDX ETF—comprised of all the largest gold miners including Barrick Gold (ABX), Newmont Mining (NEM) and Goldcorp (GG)—more than doubled in the first six months of the year. GDX has since come crashing back to earth along with gold prices, but for a while there was no hotter industry than gold, and many of GDX’s holdings made regular appearances in our Cabot Top Ten Trader growth-stock advisory in the first half of 2016.

Best ETFs of 2016 #3: iShares MSCI Canada ETF (EWC): +22%

For all the attention stocks in the U.S., Europe and emerging markets received this year for their (mostly) stellar performance, Canadian stocks flew under the radar. But Canada’s benchmark Toronto Stock Exchange index is up more than 17% year to date, well ahead of the returns in the S&P 500, London Stock Exchange, Shanghai Composite, Bombay Stock Exchange and others.

Why have Canadian stocks fared so well in 2016? For one thing, Canadian stocks had been stuck in the mud for years and were due for a breakout. In fact, the TSX Composite is still below its pre-recession peak. Other factors are a weak Canadian dollar that boosted earnings at Canadian multinationals that rely heavily on overseas sales, a more stable government under Justin Trudeau, and improving economic forecasts.

The MSCI Canada ETF, weighted heavily in financials such as Royal Bank of Canada and Bank of Montreal, has outperformed the broad Canadian market, making it one of the best ETFs of the year.

Best ETFs of 2016 #4: The Financial Select Sector SPDR Fund (XLF): +21%

Most of the gains in banks and other financial institutions have come since Donald Trump won the election. Trump’s business acumen is being viewed (at least so far) as good for the economy and, thus, good for banks. That’s why, of the 22% gain in the XLF—an ETF that tracks the financial sector, including the six biggest U.S. banks—more than 13% of it has come in the last month.

Best ETFs of 2016 #5: PureFunds ISE Junior Silver ETF (SILJ): +123%

The SILJ is more obscure, but I’ve written about this silver ETF before. And just look at the return!

Silver, like gold, had a huge run-up the first half of the year, jumping from $13 an ounce to as high as $21 an ounce in July. Silver prices have since settled back in the $15-to-$16 range, but silver mining stocks—particularly junior silver miners, like the 24 junior miners tracked by the SILJ—have netted a massive return in 2016.

SILJ isn’t likely to duplicate that performance in 2017, especially now that silver prices are slumping again. In fact, none of these five ETFs are likely to sustain their 2016 performance for another year.

But a year from now, there will be five ETFs celebrating a banner 2017. The best way to identify them early is to pay attention to the charts, pay attention to what’s going on in the world and the global economy (including Canada!), and, of course, keep reading all the expert opinions from our advisors here at Cabot Wealth!

Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .