With US equities continuing their ascent in the face of uncertainty over a major healthcare initiative, unrest in Greece and mediocre employment developments, the following ETFs performed quite strongly given the circumstances. For the week ended 3/12/2010, here’s a snapshot of some of the best performing ETFs of both the traditional and leveraged sort:
Hottest Sector & country ETFs non-leveraged:
FBT -First Trust NYSE Arca Biotech Index – Up 5% – Biotechs have been very hot of late, with many Biotechs breaching highs not seen since early in the decade. FBT was especially helped this week by a huge run on Intermune’s idiopathic pulmonary fibrosis news, which comprises a sizable portion of the ETF’s weighting now. Elsewhere in Biotech news, it seems as though a new deal or acquisition is announced weekly. With big pharma facing the realization that the old blockbuster model is virtually over, they are increasingly looking to biotechs for new pipeline help. This bodes well for the sector at large.
ICF -iShares Cohen & Steers Realty Majors – Up 4% – ICF has really done well versus the market as a whole, up 87% vs. 52% for the S&P500 for the prior year period and also besting the S&P500 7% to 3% YTD. Realty shares took it on the chin so hard during the crash late 2008 into 2009 that investors savvy enough to buy distressed assets at the bottom saw triple digit gains not likely to be seen again until the next crash (see top ETF performers in global and sector ETFs from the 2009 bottom).
KBE -SPDR KBW Bank – Up 4% – Banking shares have been on fire of late as some of the “zombie” banks, especially Citigroup begin to show signs of life. In listening to Pandit’s testimony before Congress and the subsequent analysis of Citi’s prospects with the impending exit of the government’s stake in the company, many analysts expect Citi to be a $10 stock once again soon. The question is when. Regardless, these prospects bode very well for the financial sector as whole.
IIH -Internet Infrastructure HOLDRs – Up 4% – This ETF owes part of its recent success to Akamai, up over 8% for the week, which comprises a quarter of its weighting. With capital spending expected to rise and corporations increasingly turning to productivity over payroll expansion as the economy picks up steam, I would expect to see spending in the internet infrastructure space continue to outpace the market. IIH is up 18% vs. 3% for the S&P500 YTD.
Hottest Leveraged ETFs:
DRN – Direxion Daily Real Estate Bull 3X – Up 11% – Real estate was hot last week as cited above in the in ICF’s overview. Year to date, DRN is up over 20% vs. a gain of 3% for the S&P500.
FAS -Direxion Daily Financial Bull 3X – Up 7% – FAS has been the pinnacle of volatility and fast-trade vice for the past 2 years as Financials crept to virtual insolvency and sprang back in shocking fashion during this tepid economic recovery at large. Given the 3X daily rebalancing leverage employed, it is a favorite among day traders to exploit the still-volatile action on the underlying Financials sector. YTD, FAS is also up 20%.
URE -Ultra Real Estate ProShares – Up 7% – The 2X brethren of DRN fared well of course, just not to the same degree.
TNA -Direxion Daily Small Cap Bull 3X – Up 5% – With a mild up week continuing for US equities at large, the small cap index which carries higher Beta outpaced larger issues, and by overlaying 3X daily returns across a 5 day up trend, we saw a handsome 5% gain in TNA. YTD, TNA is up 26% and 83% for the prior 1 year period.
I always make it a point to highlight my disdain for leveraged ETFs as an “investment” since they tend to lose value over time regardless of the performance of the underlying benchmark given the value decay from daily rebalancing. In fact, by employing an opposing pair short leveraged ETF strategy, I’ve been capturing some great double-digit gains regardless of market direction. That being said, if you’re a retail investor considering buying or trading a leveraged ETF, just make sure you understand this phenomena. It’s not tracking error and it’s not a mistake when you lose money in one of these while the underlying benchmark is flat. It’s value decay.