Top ETF Gainers of the Week to Watch

by ETF Base on November 14, 2010

In a down week for indices world-wide, the top ETF gainers for the period were primarily short ETFs, with some strength in the energy sector evident.  Oddly enough, following the widely anticipated QE2 announcement, Treasuries have been selling off, presumably because markets had widely anticipated the announcement and were perhaps hoping for something more substantial on the order of another full Trillion dollars in purchases.

Those who foresaw the government debt reversal and shorted Treasury ETFs had a good week.  Meantime, gold and silver had wild swings, with silver’s move initially precipitated by margin requirement surprise announcements, but further bolstered by US Dollar strength in what appears to be the next Euro crisis – Ireland.

Elsewhere, Obama’s trip abroad failed to yield a free trade agreement with South Korea, there was much criticism from abroad on the US QE2 initiative, there were some really shocking cuts recommended from the US deficit panel, and the tech bellwether Cisco (CSCO) saw its shares hammered in an earnings call in which its outlook was less than hopeful.  With these events, we saw the following top performing ETFs in both the non-leveraged and leveraged segments:

Non-Leveraged ETFs

GAZ – Barclays iPath Natural Gas ETN – Up 11% – Energy has been a hot story of late, even with other commodities taking a breather this week.  This natural gas ETN (exchange traded note) has been moving quickly, but note that ETNs can trade at a premium to the net asset value of their underlying assets, and GAZ is showing a premium of over 20%.  A reversion to the mean alone would surprise investors.  GAZ is actually down 38% YTD.

VXX – iPath S&P 500 VIX Short Term Futures ETN Up 7% – This ETN trades on the VIX, otherwise known as the fear index.  In any down week, one could anticipate VXX will show a positive return.  This often makes for a good long trade when markets are collapsing and volatility is spiking, but as a long-term investment, VXX isn’t really suitable for most portfolios.  Volatility is not an asset class and can’t reasonably be assumed to appreciate indefinitely.  YTD, VXX is down over 65%.

XOP – S&P Oil and Gas Exploration – Up 3% – This ETF was up on both stronger oil prices (aside from Friday) and M&A activity in the sector, including Chevron (CVX) and Atlas (ATLS). With multinationals flush with cash, investors are certainly speculating on more such activity.  XOP is up 16% on the year.

Leveraged ETFs:

DRV – Direxion Real Estate Bear 3X – Up 15% – Real estate outfits took it on the chin last week in the face of more downward home price data in many metro markets and no signs of life in the economy at large.  With more on leveraged ETF performance below, note that DRV has lost 2/3 its value just YTD.

EDZ – Direxion Emerging Markets Bear 3X – Up 13% – With emerging markets tending to be more volatile than western markets, many countries in the emerging markets sectors showed huge losses on the week on the heels of China trying to cool things down with further rate increases and global jitters over the latest Greece in the EU – Ireland.  Given the strength we’ve seen overall for emerging markets on the year, the 3X inverse EDZ is down over 50% YTD.

ERX – Direxion Energy Daily 3X – Up 4% – One of the sole long ETF sectors on the week, ERX gained on the heels of oil and natural gas continuing to rise, driving exploration and refiners higher.  As mentioned above, with some M&A activity in the sector, speculation on other deals drove shares of many firms higher as well, in spite of a drop in oil prices on Friday.

* I always highlight that leveraged ETFs are undesirable as  long-term investment due to the decay in value that occurs over time from daily resets.  This is a mathematical certainty that investors often don’t research or understand up front, check out real-life example leverage ETF decay examples showing why they continuously reverse split for more.

Disclosure: No positions in any ETFs for equities referenced in article.

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