As the first quarter comes to a close, stock market investors have seen a lot of volatility but not much progress. After wild swings in both directions, the S&P 500 (SNPINDEX:^GSPC) came into the last day of the quarter with a gain of just over 1%, while the Dow Jones Industrials (DJINDICES:^DJI) had climbed by less than 1%.
Yet when you look at the world of exchange-traded funds, several areas of the stock universe have absolutely crushed those tepid returns. In particular, solar stocks, biotechs, and hedged funds of international stocks have produced solid gains to start 2015. Let's look at three of the best ETFs in the market so far this year.
A day in the sun
Coming into 2015, solar stocks had gone through a tough period. The big drop in crude oil and natural gas prices had called into question the viability of solar as a cost-effective method of energy production, and even solar advocates feared energy users would turn back to fossil fuels now that they were so much cheaper.
Yet solar stocks have bounced back this year, with the Guggenheim Solar ETF (NYSEMKT:TAN) climbing more than 31% so far in 2015. The ETF holds familiar names such as First Solar and SunPower, both of which have contributed to its strong performance. But Guggenheim Solar's biggest wins have come from lesser-known Chinese companies including Hanergy Thin Film and Hanwha Q CELLS, which respectively have risen almost 150% and 100% in 2015. Even with the rebound, Guggenheim Solar's one-year return is just 4%, so investors need to be ready for inevitable volatility.
Biotechnology stocks have been popular for a long time, and they've shown few signs of slowing in 2015. The SPDR S&P Biotech ETF (NYSEMKT:XBI) is up another 20% this year, bringing its total one-year return all the way up to 65%.
The SPDR ETF has the advantage of being equal-weighted, which has given it less exposure to the large names in the space in favor of smaller companies that have performed better. For instance, two companies with the highest weightings in the ETF right now are Prothena and Esperion Therapeutics, which have soared on favorable news regarding potential treatments for Parkinson's disease and high cholesterol, respectively. Rebalancing occurs regularly, but as long as larger healthcare companies seek out promising young targets for acquisitions or partnerships, biotech has the capacity to keep rising.
All about the dollar
International markets have performed better this year than the U.S., as policymakers in Europe, Japan, and China all try to restart their economic growth engines. That has contributed to big rises in the U.S. dollar, but specialty ETFs hedge out that currency risk and have therefore participated in the full gains of foreign markets in local-currency terms.
For instance, the WisdomTree Europe Hedged Equity Fund (NYSEMKT:HEDJ) is up 20% so far this year, with the dollar's rise against the euro representing more than half of the fund's overall gain. Strength in major European markets such as Germany and France has definitely helped, but the fund focuses largely on exporters that benefit from a falling euro. Combined with currency derivatives, the ETF is well positioned to keep delivering strong returns if the dollar remains strong and the European Central Bank continues its aggressive stimulus policies.
Three months isn't a long time in the stock market, and the fortunes of these early winners could change later in the year. For now, though, solar stocks, biotechs, and currency-hedged ETFs are all performing well, and the trends that gave them good performance show few signs of slowing in the immediate future.