It has been a wild spring. In the ETF world, some of the best performers as of late were basement-dwellers in 2008. It is open to debate whether some of these funds were oversold and due for a correction, or if their rebounds are rooted in baseless optimism. In any event, here are 4 ETFs that are on fire right now.
A Rise from the Ashes
Last year, the Ultra Real Estate ProShares Fund (NYSE: URE) fell off of a cliff as it chalked up a loss of 80.7%. This leveraged ETF, which gives investors exposure to commercial, residential and healthcare REITs, has embarked upon a frenzied rally over the past four weeks. No other ETF has performed better during this time period, as URE has stormed back with a 42.5% rise.
This unexpected rebound might prove to be short-lived. The Standard & Poor's Q1 Global Property & REIT Report notes that many analysts believe that talk of a bottom for property and REIT stocks may be premature. The reality that an estimated $500 billion to $1 trillion worth of commercial real estate will mature in the next 3 years could pose some serious liquidity challenges for a number of companies in the space. (For more, see ETFs: How Did We Live Without Them?)
The Ultra Industrials ProShares Fund (NYSE: UXI) is up 21.1% over the course of the past 4 weeks. The ETF's top holding, General Electric (NYSE: GE), has been a major contributing factor to this surge. GE accounts for 7.8% of UXI's net assets and GE has seen its common shares more than double since hitting its 52-week low of $5.87 on March 4.
This specific ETF has a fair amount of exposure to government contractors. Investors will want to closely monitor the Obama administration's intention to crackdown on excessive spending in this area. In the past, government contractors have performed comparatively well during tough times, but they could have targets on their backs this time around. (For further reading, see Five Ways To Find A Winning ETF.)
After several years of punishment, the U.S. homebuilding industry has begun to show some glimmers of hope. Earlier this month, The National Association of Home Builders reported its confidence index to be at its highest level since October. This optimism has pushed shares of the SPDR S&P Homebuilders ETF (NYSE: XHB) 18.3% higher during the past 4 weeks.
Record-low interest rates and an $8,000 tax credit for new home buyers have been key factors to the XHB rebound. However, companies contained in this ETF will be challenged in the months ahead by excessive inventories and the prospects of a rising unemployment rate.
All Stressed Out
Better-than-expected Q1 earnings announcements have been the driving force behind the Financial Select Sector SPDR's (NYSE: XLF) 17.8% climb during the month of April. Mounting credit loss provisions were largely overlooked or ignored in recent weeks, as financial stocks experienced increased momentum.
The next hurdle in the path of this ETF will be the government's stress test results. On Tuesday, The Wall Street Journal reported that the results could mean that Bank of America (NYSE: BAC) and Citigroup (NYSE: C) may need to raise additional capital .
The Bottom Line
These 4 ETFs have been outstanding performers during the month of April, but each ETF has major challenges looming on the horizon. It will only be a matter of time before we know whether these obstacles can be cleared or if they will erase the recent gains. (For more, see An Introduction To Exchange-Traded Funds.)