ETFs with Holiday Charm, Truth or Myth ?

With Christmas around the corner, we thought it would be interesting to see if there are any ETF trends occurring every year during the joyful month. Playing with Trackinsight data, we searched for ETFs that traded green every December since 2014 and then averaged those returns to see which were the Best "Holiday" ETFs over the past 7 years.

The data excludes:

• Short or inverse ETFs
• Leveraged ETFs
• ETFs listed after 2015
• ETFs with one or more loss making Decembers
• APAC / AFRICA ETFs

We ended up with the following ETFs:

1. Global X Gold Explorers ETF (GOEX): +6.50%
2. Horizons Enhanced Income Gold Producers ETF (HEP): +5.44%
3. Lyxor NYSE Arca Gold BUGS (DR) UCITS ETF (CBGOLD): +5.34%
4. Market Access NYSE Arca Gold BUGS Index UCITS ETF (MAGB): +5.24%
5. L&G Gold Mining UCITS ETF (AUCO): +4.82%
6. UBS ETF (CH) – SXI Real Estate Funds : +4.46%
7. VanEck Vectors Gold Miners ETF (GDX): +4.45%
8. iShares Gold Producers UCITS ETF (SPGP): +4.40%
9. UBS ETF (CH) – SXI Real Estate: +4.22%
10. VanEck Vectors CEF Municipal Income ETF (XMPT): +1.61%

Gold ETFs take the lead in December

Source: investing.com

Oh my Gold! We have a winner! Apparently Gold Miners ETFs did well in December. In fact, Gold miners are highly leveraged to the price of gold and tend to outperform the Gold bullion during short-term bull runs due to their operating leverage, and of course vice versa. Using third party data, we extracted Gold's average monthly return for each month between 2014 and 2021 to see if the trends match our best December ETF results.

Reviewing data in the previous graph, we notice that January is Gold's lucky charm with +3.8% average return between 2014 and 2021, while December comes in second with +2.4% between 2014 and 2020 (2021 December data obviously unavailable). 

This clearly justifies why Gold mining ETFs did well in December, and we may also see them at the top if we did the same exercise for January.

Now, we will look at the best performing ETF in December (2014-2020), the Global X Gold Explorers ETF or GOEX.

Dissecting GOEX, the December King

The Global X Gold Explorers ETF or GOEX tracks the Solactive Global Gold Explorers & Developers Total Return Index and invests in a basket of companies involved in the exploration of gold deposits, or in other words gold miners. The $50 million fund is fully exposed to the materials sector but is diversified in terms of countries. Canada has the lion's share (52.4%), followed by Australia (18.9%), Britain (11.4%), United States (8.8%), Indonesia (6.7%), Turkey (0.9%) and South Africa (0.8%). Among its 50 holdings are Hecla Mining (5.38%), Merdeka Copper (4.76%), SSR Mining (4.61%), Pretium Resources (4.56%), B2Gold (4.21%) and Alamos Gold (3.91%).

Source: Trackinsight.com

In terms of performance, GOEX has vastly underperformed its peer the VanEck Gold Miners ETF (GDX) but matched the performance of VanEck Junior Gold Miners ETF (GDXJ), suggesting that GOEX is also exposed to Junior miners. However, the three Gold Miners ETFs have all vastly underperformed the SPDR Gold Shares (GLD), an ETF that tracks the price of physical gold and does not hold any gold miner stocks. This shows that miners may outperform physical gold on short-term bull runs but underperform on the long run.

Source: Trackinsight.com

Comparing head-to-head in December only, we see that GOEX had 8 positive December returns out of the last 11 with an average return of 2.61%, followed by GDX with 7/11 and an average return of 0.63%.

Source: Trackinsight.com

We did the same exercise for January, Gold's best performing month based on 2014-2021 data. GOEX had the highest average return with 3.5% but only had 5 out the last 10 Januarys with positive returns. GLD on the other hand had an average return of 2.8% in January and 8 out of the last 11 Januarys with positive returns. GDX and GDXJ also did good with more than 2.5% average January returns each and 5x and 7x with positive January returns respectively.

Is January really Gold's best month?

Source: Trackinsight.com

We've tracked gold performance between 2001 and 2021 to see the average performance and the number of positive returns gold had each month. Apparently, January is still Gold's lucky month with an average of 2.9% during that span and with 14 positive returns out of 21. August comes in second with 2.2% average returns and 14 positive returns, April third with 1.3% and 14.

These results may be true for that range but could change if we expand the timeline to add 40 or 50 years of data.  The best way to illustrate that is through Goldsilver.com's 1975-2020 study. According to their findings, September had the best average monthly performance, while January came in second.

Source: Goldsilver.com

This highlights one thing: "Past performance is no guarantee of future results". Despite the apparent seasonality in some investments, an investment should be forward looking and take into consideration catalysts or risks that may or may not occur in the future. However, past results could help understand what moves an investment. In the case of Gold, investors could look back and investigate monetary policies, economic data, dollar strength, inflation, supply and demand and uncertainties in general that may have caused Gold price to trend higher in a particular month. By understanding the Gold pricing dynamics, investors could make better investment decisions that do not rely solely on historical performances.

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