Exchange-traded funds (ETFs) hold a collection of securities—such as stocks—that often track an underlying index. While they are similar to mutual funds in some ways, ETFs are different in that they are listed on exchanges and can be traded throughout the day like traditional stocks. In recent years, ETFs have become immensely popular with investors for two major reasons. They provide an easy access point to a wide variety of sectors, industries, and strategies. And they tend to minimize many of the risks inherent in investing in individual stocks.

Key Takeaways

  • The best ETFs by 1-year trailing total return have dramatically outperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are BDRY, REMX, and LIT.
  • The top holdings of these ETFs are freight futures contracts, class A shares of China Northern Rare Earth (Group) High-Tech Co. Ltd., and Albemarle Corp., respectively.

There are 1,574 ETFs that trade in the U.S., excluding leveraged or inverse funds as well as those with under $50 million in assets under management (AUM). The S&P 500 has provided a total return of 31.2% over the past 12 months, as of Aug. 31, 2021. All three of the top ETFs by 1-year trailing total return dramatically outperformed the S&P 500 over the past year. It's notable that all three ETFs are linked to global commodity markets directly or indirectly, reflecting the surge in demand for commodities as the global economy continues to recover from last year's shock triggered by the COVID-19 pandemic. The best-performing ETF, based on performance over the past year, is the Breakwave Dry Bulk Shipping ETF (BDRY). We examine the best 3 ETFs below. All numbers below are as of Aug. 31, 2021.

Breakwave Dry Bulk Shipping ETF (BDRY)

  • Performance over 1-Year: 232.5%
  • Expense Ratio: 3.76%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 294,864
  • Assets Under Management: $87.2 million
  • Inception Date: March 22, 2018
  • Issuer: ETFMG

BDRY is structured as a commodity pool, combining investor contributions to invest in near-dated freight futures contracts on dry bulk indices. The fund holds freight futures that have a weighted average of approximately three months to expiration. It is designed to profit from increases in those futures beyond what is already priced into the market. BDRY provides pure-play exposure to the dry bulk shipping industry, which plays an instrumental role in global commodity markets and supply chains. The ETF's price has soared over the past year as global supply chains have faced increasing strain amid the pandemic. Those supply chain bottlenecks have caused prices to ship a 40-foot container from China to the U.S. West Coast to soar tenfold compared to pre-pandemic levels.

VanEck Vectors Rare Earth/Strategic Metals ETF (REMX)

  • Performance over 1-Year: 191.0%
  • Expense Ratio: 0.59%
  • Annual Dividend Yield: 0.47%
  • 3-Month Average Daily Volume: 247,883
  • Assets Under Management: $1.0 billion
  • Inception Date: Oct. 27, 2010
  • Issuer: VanEck

REMX seeks to track the MVIS Global Rare Earth/Strategic Metals Index, which is designed to gauge the performance of companies engaged in producing, refining, and recycling of rare earth and strategic metals and minerals. Rare earth and strategic metals include cerium, manganese, titanium, and tungsten. These metals tend to be difficult to extract and are used in jet engines, hybrid cars, wind turbines, cell phones, and a range of different electronic products. The ETF is geographically diversified, but more than 47% of its holdings are based in China. It is a multi-cap fund that follows a blended strategy, investing in a mix of both growth and value stocks. The fund's top three holdings include class A shares of China Northern Rare Earth (Group) High-Tech Co. Ltd. (600111:SHG), a China-based producer of rare earth materials and related products; class H shares of Ganfeng Lithium Co. Ltd. (1772:HKG), a China-based producer of lithium; and class A shares of Zhejiang Huayou Cobalt Co. Ltd. (603799:SHG), a China-based producer of cobalt, copper, nickel, and related products. Demand for rare earth metals is increasing amid a greater global emphasis on shifting towards clean energy systems. The International Energy Agency predicts that demand for copper and rare earth elements will rise by more than 40% as nations strive to meet the goals of the Paris Agreement.

Global X Lithium & Battery Tech ETF (LIT)

  • Performance over 1-Year: 118.0%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: 0.15%
  • 3-Month Average Daily Volume: 835,205
  • Assets Under Management: $4.8 billion
  • Inception Date: July 22, 2010
  • Issuer: Mirae Asset Global Investments Co., Ltd.

LIT aims to track the Solactive Global Lithium Index, which gauges the performance of companies engaged in lithium mining, exploration, or a closely related activity, as well as companies that produce lithium batteries. The ETF provides broad exposure to the lithium industry, including companies that mine and refine the metal as well as those involved in battery production. The majority of the fund's assets are allocated toward the materials sector, followed by industrials and information technology. Over half of its holdings are based in China, followed by the U.S., South Korea, and a number of other developed economies. The fund is focused on micro-cap companies and follows a blended strategy of investing in both value and growth stocks. Its top three holdings include Albemarle Corp. (ALB), a global manufacturer of specialty chemicals; class A shares of Ganfeng Lithium Co. Ltd. (002460:SHE); and class A shares of Yunnan Energy New Material Co. Ltd. (002812:SHE), a China-based supplier of film products, packaging and printing products, and paper packaging products. Lithium is an essential metal used in the production of rechargeable batteries that power electric vehicles. Demand for the metal has surged as global demand for electric cars has risen, a trend that is likely to continue for some time amid shifts to cleaner forms of energy.

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