5 Hottest ETFs of the week

by ETF Base on December 19, 2010

Last week ended relatively flat for the broader indices as markets digested the finalization of the 2011 Tax Plan, but there were some pockets of performance in various sectors and asset classes.  We saw a Biotech ETF benefit tremendously from a triple digit return in a top holding, we saw soft commodity prices spike (what inflation?), and we’re seeing further weakness in China.  Here are some top traditional and leverage ETFs from last week which may follow through into this year.

Non-Leveraged ETFs

SGG – Barclays iPath Sugar – Up 13% – This sugar ETN (exchange traded note included since there is no Sugar ETF) jumped again last week on continued concerns over output from various regions.  SGG has been a top performer in various weeks multiple times this fall and winter.  SGG is up 25% in the past month and an astounding 125% in the prior 6 month period.

FBT – First Trust NYSE Arca Biotechnology Index Fund – Up 10% – FBT was the beneficiary of a massive move in one of its underlying holdings, Intermune (ITMN).  Intermune jumped over 150% on the week on a positive opinion of a key drug in the EU.  Now, why the market hadn’t already baked in at least the prospect of this outcome is rather startling; we’ll often see biotechs pop 20%-50% on similar news, but with a 150% jump, it was enough to propel FBT up 10% on the week as a beneficiary.  So, before you jump into this ETF thinking it’s a hot performer, realize where the recent returns were derived and volatility works both ways.

BAL – Barclays iPath Cotton – Up 10% -Cotton is another soft commodity, alongside Sugar, Coffee, and others, that has been running on supply concerns.  BAL is an ETN as well, and on the month, BAL is up 24% and 99% over the prior 6 month period.

Leveraged ETFs

CZI – Direxion China Bear 3x – Up 7% – Asia was hit last week with investor jitters, including a downgrade of Vietnam by Moody’s.  We may see some fireworks on the Korean peninsula on Monday as well while the South prepares new drills while the North warns against such “provocation”.  While CZI has been strong in recent weeks, note that it has lost over half its value on the year.  This is the norm for leveraged ETFs held over long periods of time.

FAZ – Direxion Financial Bear 3x – Up 4%Several large banks like JP Morgan (JPM) were punished severely this week on new regulataions setting a limit on debit card transaction fees which is expected to take a huge bite out of profits. This news is probably largely baked into banks at the moment, but investors are still holding their breath for the bombshell wikileaks is promising related to Bank of America (BAC). With Treasuries crashing, investors are also questioning whether banks can be as profitable in an era of increasing interest rates. Mortgage rates saw a huge jump in recent weeks, especially following Obama’s tax deal announcement – so most people that could have refinanced already have, and prospective homeowners need to rethink purchasing power in light of these much higher rates. As rates rise and investors can realize a decent return in legitimate high yield investments like CDs and money markets, many expect investors to get out of the risk trade and back into fixed FDIC-protected instruments. Finally, note that banks are holding substantial municipal debt which is starting to draw much skepticism as well.  They’re not out of the woods yet.

Disclosure: No position in any ETFs or Stocks mentioned in this article.

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