Which are the best ETF funds 2016?
The answer depends on 3 things:
- From which date do you look back
- What is your timeframe
- The market
But even more interesting is the question:
“Is looking for the best ETF funds 2016 a good question?”
From which date do you look back
While I’m writing this post we have 3/31/2016, the last day of the first quarter of the year 2016. After a sharp decline in January, the market recovered in these month and is more or less at the same level as at the beginning of the year, depending on which market you look, for instance the Dow Jones Industrial Average (left chart) is a little higher whereas the Russell 2000 (right chart) is still a little lower.
If you looked back at the end of February, you would have said, that 2016 is a terrible year, while today you could say, that you are in the same level, depending which market you observe.
What is your timeframe
This is the other big point of interest. Depending on your timeframe, for example 1 year, 3 years, 5 years or 10 years, you will get different answers.
In the beginning of 2015 CNN Money launched an article about the 5 hottest ETFs in the world. Let’s take a closer look at three of them:
According to their article the best ETFs in this three markets gained between 400% and 530% since the beginning of the bull market in march 2009.
If you invested in mid 2007, your gain would be still good, but in the first part you would have suffered a loss of nearly 50%. This means, that half of your investment or capital would be gone! Depending on which market you observe, the recovery time would have been between 2 years (FBT) or 6 years (RPV). As you can see these are quite different numbers!
But now we can make an experiment.
Let’s assume you have read this article in march 2015 and bought one or all of these ETFs and see, how they developed the time from the end of February until today (3/31/2016). If you look at the chart above, you think that it will be a very good investment, because we image, that the chart will move on in the same direction. This is our natural bias.
Depending which one you choose, you would have been lucky or very lucky in between times, but today you are at your entry price more or less.
I personally think, that to choose the correct market is one of the main tasks of a good investor or trader. At every time one market makes a big move, may be it is the equities market or the metals, agrar or the forex market. But somewhere is a big move which you can ride.
Maybe that you expect falling interest rates like I do and explain in my article :”Fed interest rate forecast“. But you have to make your own decision, what market scenario you believe. Corresponding to your estimation, you can choose from the ETF universe. If you dig deeper, you will see, not only that you can invest in nearly every market you can think about but also that some etfs are leveraged. In the case you are very sure about your opinion you can choose leveraged ETFs.
As an example, you can see 3 ETFs, which trade the market of the S&P 500.
Is is the SPDR S&P 500 ETF (SPY, green),
the Ultra S&P 500 (SSO, orange) and
the UltraPro S&P 500 (UPRO, blue).
As you can also see, the higher the leverage the higher the loss, if the market goes down!
Futhermore you will find ETFs, which will increase in value if the market decreases, for example the SPDR S&P 500 ETF (SPY, green) and its inverse ETF the Short S&P (SH, blue)
You see at this percentage chart, that both ETF react inverse, i.e. if the SPY goes up the other goes down and vice versa.
Is this a good question…
… to ask for the “best ETF funds 2016?
Obviously it is not a good question to ask this, because this is only interesting in a look back but not in a look forward. Instead, you should ask yourself, what you expect about the future? What will change? If you invest for a long term, think about the next big thing. Is it the 3D printer or cars without a driver? Will China grow further, or will it be India. What about Africa? The population in Africa is growing like crazy and all these people need water, food, shelter and so on. On the other hand, they struggle with corruption and lack of education.
This is an example of good questions for an investor. What do you think? Please let me know your opinion and share your thoughts with us.