Volatility ETFs topped the table of best performers in June. ETFs tracking the VSTOXX and the VIX indices rose between 7.2% and 16.6%, depending on the term structure.
Volatility was driven by various events throughout the month. Political unrest in Turkey sparked volatility early in the month, with the VIX and VSTOXX rising by 7%-10% in the first week. Demonstrations in Brazil also weighed on investors’ risk appetite. And as the month progressed, concerns about China’s economy sparked further sell-offs in the equity market.
However, the largest sell-off came after Fed Chair Ben Bernanke hinted at a possible pull-back from its historical low rate policy and bond buying programme. Safer assets, like municipal bonds and dividend-paying stocks, saw the sharpest decline. As investors ran for the exit, the Fed made it clear that there will be no abrupt end to its monetary policy support.
The list of worst ETF performances in June is dominated by gold mining companies. After hitting a record high around $1,800 in mid-2012, the price of gold dropped to $1,223 as of end of June – falling 23% in the second quarter alone. Together with physical gold, mining companies have been dumped by investors on concerns profit margins are contracting sharply while the decline in the price of gold exposes their huge debt burden. According to ratings agency S&P, if the gold price holds under $1,300 for more than six months this could lead to the downgrade of many gold miners’ credit ratings, as current revenues would be unlikely to fully cover overall costs.
(Click below image to see an enlarged list of the best and worst ETf performances in June.)
Investors wanting to know more about volatility as an asset class can read our article Volatility: A Sophisticated and Potentially Pricey Portfolio Tool.
