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Dec. 30, 2016, 1:06 p.m. EST

Here’s how these 2016 ETF picks worked out

It was a big year for small-caps, but not for low-volatility strategies

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By Ryan Vlastelica


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Every year MarketWatch publishes a list of exchange-traded funds—chosen by investment professionals—that are expected to outperform over the coming year. Here is the one published for 2015, and here is the entry for 2017, published earlier Friday.

Any analyst can make predictions, but the trick is to offer ones that actually pay off. With that in mind, let’s take a look back to the end of 2015, when experts gave their picks for 2016, and see how they fared.

Dave Nadig, who was at FactSet last year but is now the chief executive officer of ETF.com, a research and analytics company owned by Bats Global Markets, had offered three funds to keep an eye on in 2016.

The first, the U.S. Global Jets ETF /zigman2/quotes/207744796/composite JETS -1.58% , tracks companies involved with the aircraft industry, including airlines, manufacturers, and terminal service companies. The fund is up 12.4% for the year, slightly outperforming the S&P 500’s /zigman2/quotes/210599714/realtime SPX +0.24%  9.8% rise.

Airlines faced some pressured this year due to a recovery in crude oil prices—fuel is a major expense for the sector—but they received a massive endorsement in November, when famed investor Warren Buffett disclosed that he had bought shares of several industry heavyweights. Last year, Nadig called it “a solid pick for an industry delivering some of the best earnings reports we’ve seen in a long time,” though he noted it was “a little pricey,” given its 0.6% expense ratio.

Nadig also selected the Pacer Autopilot Hedged Europe ETF (PAEU), a currency-hedged fund with exposure to such European markets as France, Germany, and Spain. This small fund struggled to gain assets or trading volume, and has only moved sporadically. At last trade, it was up 3.3% for the year.

The fund “could give investors the best of both worlds—unhedged when the dollar is weakening, hedged when the dollar is strengthening,” Nadig told MarketWatch last year, though he said “I wouldn’t be looking at this right away,” citing the low levels of volume and assets, a caution that proved canny.

His third ETF choice was the ProShares Investment Grade Interest Rate Hedged ETF /zigman2/quotes/202335373/composite IGHG -0.15% , a corporate bond ETF that Nadig said could be in “the sweet spot” in 2016. The fund rose 4.1% over the year, outpacing the 2.8% rise of the iShares iBoxx $ Investment Grade Corporate Bond /zigman2/quotes/206919681/composite LQD 0.00% , the most widely used corporate bond ETF.

Overall grade: A-. Two of Nadig’s choices outperformed, while his caveat on the third proved canny.

The next expert is Todd Rosenbluth, director of ETF and mutual fund research at CFRA (last year it was called S&P Capital IQ + SNL Financial).

/zigman2/quotes/208653303/composite IJR 63.76, +0.26, +0.41%

Rosenbluth chose the iShares Core S&P Small-Cap ETF /zigman2/quotes/208653303/composite IJR +0.41% , noting that small-caps typically outperform their larger equivalents in election years. That certainly proved true in 2016; the fund jumped 25.1% over the course of the year. Not only was this double the gain of the S&P, but it outpaced the 20% surge in the Russell 2000 /zigman2/quotes/210598147/delayed RUT +0.59% .

is next selection was the iShares Edge MSCI Min Vol USA ETF /zigman2/quotes/203326574/composite USMV +0.35% , which rose 8.3% over the year. That’s a good return, but it is a smaller gain than the S&P’s advance.

Rosenbluth had forecast large-cap stocks to be volatile in 2016, calling his minimum-volatility strategy “a low-cost, diversified way to tilt to low-vol stocks in each sector.”

Despite a rocky year, however, marked by “Brexit,” Donald Trump’s U.S. presidential election victory and other significant macroeconomic events, volatility never really entered the market. The CBOE Volatility index /zigman2/quotes/210598281/delayed VIX -4.64%  a measure of investor anxiety, recently fell to its lowest level since August 2015.

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