Best ETFs of February 2012: Investors Boosting Oil, Asian Markets

by JT on February 29, 2012

The markets had no problem picking a direction in February – up! Investors enjoyed improving economic data in the United States while Greece and Europe once again fell out of the news cycle for a very timely boost in morale.

Investor appetite was especially strong for tech and energy, which you’ll see in the following best ETFs for February 2012:

Best Leveraged ETFs

    1. Direxion Daily Tech Bull 3x (TYH) 23.86% – Leading the pack was Direxion’s leveraged tech ETF. Levered to major technology firms at three times the daily movement, a rising tide in tech stocks day after day helped lead this ETF on quite the run. In particular, Apple smashed earnings in January before tech giants CSCO and MSFT both reported earnings above expectations. Investors seeking value have turned to “old tech” stalwarts; Warren Buffett’s firm, Berkshire Hathaway, recently purchased shares in both IBM and Intel (INTC).
    2. ProShares UltraPro QQQ (TQQQ) 20.76% – Levered 3-to-1 to the Nasdaq 100 index faired especially well this month, easily tripling Nasdaq 100 performance. The Nasdaq 100 added 6.6% this month, less than one-third the return of the triple leveraged TQQQ ETF. Investors can expect a fund to outrun its objective when the markets are so directional. It’s rare to see a single ETF deliver on its promise to triple returns day-by-day and month by month. Investors won big with this one.
    3. Direxion Daily Energy Bull 3x (ERX) 13.58% – Energy was the play of the month, with oil reaching toward $110 per barrel on the fear of Iranian unrest and potential supply constraints from protectionist trade policies. Additionally, Bernanke’s pledge to keep rates low until 2014 stokes the fears of dollar devaluation, sending investors to hard assets. The ERX ETF is designed to track three-times the daily move in the Russell 1000 Energy index.

Best Traditional ETFs

    1. United States Oil (USO) 6.84% – Not surprisingly, a pure-play on oil futures turned out to be one of the best investments for February 2012. This fund is sure to correct, however, as it rolls its February contracts into March – positions that make up 50% of all invested capital. USO’s reliance on futures exposure makes it one of the worst ETFs to hold long-term, as contango slowly bleeds the fund of its oil holdings.  People sometimes use this ETF to hedge their gas prices, but since the oil input is only a portion of gas pricing and the contango effect, there are better methods for that.
    2. SPDR S&P Oil & Gas Exploration & Production (XOP) 6.45% – A general rise in energy gave boost to this popular oil and gas stock ETF. The XOP ETF differs from other in that it holds primarily small and micro capitalization oil and gas firms, which carry the highest operating leverage and benefit most from a rise in energy prices. The ETF holds nearly 42% of its portfolio in small and micro-cap energy producers, which explains its paltry 1.08% dividend yield.
    3. iShares MSCI Hong Kong Index Fund (EWH) 6.6% – Hong Kong managed to rally in February likely due to Chinese intervention, which added fuel to the Chinese real estate fire by culling back on real estate financing limitations. US Consumer Confidence also came in better than expected, which tends to be good news for the major exporting economies that make up the greater Asian continent. The markets were so good, in fact, Hong Kong brokers even found the time to protest to keep their long, 90 minute lunch breaks.  Black Swan investors should continue to keep their eye on Hong Kong Dollar Options for that 100:1 payoff hedge funds are betting on.

Disclosure: No holdings in any ETFs covered in this article.

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