10 of the Best-Performing ETFs in Q1

·8 min read

Marijuana and energy are among the trending markets in early 2021.

In the first quarter of 2021, between Jan. 1 and March 31, the S&P 500 logged a modest gain of about 7% as the global economy looks to get back on track, thanks to the rollout of COVID-19 vaccines. However, as always, there are a few pockets of the stock market that have done significantly better than these broad gains on Wall Street. The following exchange-traded funds represent some of these dynamic subsectors, offering investors a tactical way to play big-picture trends without picking individual stocks. These funds admittedly carry a bit more risk than traditional large-cap ETFs. That said, these 10 top-performing ETFs have more than $150 million in assets at present, and none are "leveraged" funds that use complex financial structures to deliver two or three times the returns of an underlying index for a bit more stability than the most aggressive funds on Wall Street.

iShares U.S. Oil & Gas Exploration & Production ETF (ticker: IEO)

The first fund among the top-performing ETFs for 2021 so far represents a resurgent oil and gas production industry. West Texas Intermediate crude oil prices briefly plunged into negative territory in early 2020 due to a strange convergence of surging global supply, plummeting demand amid the pandemic and physical storage concerns for all that unused crude oil. Today, oil prices are back around $60 a barrel -- and the exploration companies that were in danger of going under during the worst market dynamics last year are now looking much better as a result. Top stocks in this iShares fund include ConocoPhillips (COP) and EOG Resources (EOG), which together make up more than 25% of the portfolio.

Assets under management (AUM): $263 million
First-quarter (Q1) return: 36%

SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

Similar to IEO but posting a slightly better performance year to date, XOP is a diversified ETF with about 50 total holdings that are intended to be "equal weight." Right now, no stock represents more than about 3% of the portfolio -- meaning its top 10 holdings, such as Southwestern Energy Co. (SWN) and Hess Corp. (HES), share roughly the same weight as the top two positions alone in the prior oil and gas fund from iShares. If you want to cast a wider net to play the recovery in energy prices, XOP offers not only more diversification but better profits for shareholders so far this year. It's also a heck of a lot more established with nearly $4 billion in total assets.

AUM: $3.7 billion
Q1 return: 38%

Invesco DWA Energy Momentum ETF (PXI)

Of course, bigger isn't always better when it comes to performance. This Invesco energy fund focuses on the stocks in the sector that are showing the biggest upside momentum right now. That includes under-the radar picks such as SM Energy Co. (SM) and Matador Resources Co. (MTDR), two stocks that collectively add up to only about $5 billion in market capitalization but have seen around 100% or more in returns so far this year. This is one of the smaller funds on the list, and it is certainly more volatile based on its approach -- but with that risk clearly comes the potential for higher rewards if it's on the right side of the trade.

AUM: $151 million
Q1 return: 39%

Invesco S&P SmallCap 600 Revenue ETF (RWJ)

A quirky "smart beta" fund, this Invesco ETF uses an S&P index of 600 small-cap stocks and then weights the stocks according to how much revenue they make, with a maximum of 5% weighting for a single position. These kind of funds are hit-or-miss because sometimes they simply put weird screening systems on top of an underlying index that works just fine without added cost or complexity. In this case, RWJ has managed to keep up with the gains of the conventional S&P SmallCap 600 Revenue-Weighted Index year to date, thanks to its revenue weightings and focus on top stocks, which includes organics distributor United Natural Foods (UNFI) and retailer Macy's (M), among others.

AUM: $480 million
Q1 return: 42%

First Trust Natural Gas Index Fund (FCG)

The last energy-related ETF on this list of top performers in Q1 is FCG, a First Trust fund that is focused on natural gas instead of crude oil. Natural gas is seen by some as an important bridge to the clean energy economy as it is comparatively cleaner-burning than fossil fuels like oil and coal. Furthermore, natural gas is abundant onshore in the U.S. and doesn't require the controversial practice of "fracking" that some companies use to extract oil from shale fields. Though the portfolio is admittedly focused with fewer than 40 stocks at present -- including pipeline operator Western Midstream Partners (WES) -- FCG has had a good run in 2021, as demand has increased for natural gas and pricing has firmed up as well.

AUM: $200 million
Q1 return: 43%

The Cannabis ETF (THCX)

We now enter the marijuana-focused portion of the list, with a bunch of related but slightly different ETFs to play this trend. All have performed very well in 2021, thanks to what is seen as receptive sentiment in the general public toward recreational marijuana use, as well as public policy changes including continued legalization or decriminalization at the state level. In early April, Senate Majority Leader Chuck Schumer even indicated that Congress could take up a federal legalization effort even without President Joe Biden's support. It's no surprise that the for-profit cannabis sector has been ascendant as a result, and THCX is one of a few ways to play that trend.

AUM: $175 million
Q1 return: 51%

Global X Cannabis ETF (POTX)

Compared with other funds listed here, POTX is a narrow cannabis ETF with only about 25 total positions right now. The universe of companies in this industry isn't that large, so that's not a huge reduction from its peer ETFs. In addition to a smaller portfolio, POTX is also very top-heavy; its top three positions GW Pharmaceuticals (GWPH), Aphria (APHA) and Tilray (TLRY) represent nearly 30% of the entire fund. The performance has certainly been there in the first few months of 2021, but if investors want to go all-in on just a few stocks, you could also simply buy these leading cannabis companies directly.

AUM: $200 million
Q1 return: 53%

ETFMG Alternative Harvest ETF (MJ)

The largest marijuana fund by assets, MJ is an ETF with 32 total positions including mainstays of the sector such as Cronos Group (CRON) and GrowGeneration Corp. (GRWG). Many of these same positions pop up in other marijuana-focused funds near the top of this list of 2021 performers, and the difference in total profits you'll see between these ETFs isn't very significant. So if you're simply looking to play the megatrend in recreational marijuana, MJ offers one of the most established and well-capitalized ETFs out there.

AUM: $1.8 billion
Q1 return: 54%

Amplify Transformational Data Sharing ETF (BLOK)

A bit of a curveball amid the marijuana ETFs at the top of the list, BLOK is a "big data" and blockchain-focused fund that is one of the only opportunities to play this tactical trend in a diversified investment. Lest you think this is all about Bitcoin, the idea behind blockchain technology is simply the digital custody of assets. This has numerous applications, and cryptocurrency is only one of them. Others include secure sharing of medical data, supply chain monitoring and anti-money laundering tracking. Digital asset technology company Marathon Digital Holdings (MARA) and business intelligence firm MicroStrategy (MSTR) are a few of the 50 or so names that make up this high-flying ETF.

AUM: $1.3 billion
Q1 return: 57%

Amplify Seymour Cannabis ETF (CNBS)

The No. 1 ETF on this list of top performers in the first quarter of 2021 -- at least, when you limit the list to funds with more than $150 million in assets that do not use leverage to achieve amplified performance -- is this tiny cannabis fund from boutique investment shop Amplify. It has fewer than 30 total holdings, but its top stocks differ from some of the other funds in that it is more reliant on Canopy Growth Corp. (CGC) and Silver Spike Acquisition Corp. (SSPK), a marijuana-focused special purpose acquisition company. Past performance is no guarantee of future returns, but it's worth noting that this is the leader among the high-flying funds out there to play the cannabis megatrend.

AUM: $151 million
Q1 return: 60%

Ten of the best-performing ETFs of Q1:

-- iShares U.S. Oil & Gas Exploration & Production ETF (IEO)

-- SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

-- Invesco DWA Energy Momentum ETF (PXI)

-- Invesco S&P SmallCap 600 Revenue ETF (RWJ)

-- First Trust Natural Gas Index Fund (FCG)

-- The Cannabis ETF (THCX)

-- Global X Cannabis ETF (POTX)

-- ETFMG Alternative Harvest ETF (MJ)

-- Amplify Transformational Data Sharing ETF (BLOK)

-- Amplify Seymour Cannabis ETF (CNBS)

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