With only two weeks to go, it looks like 2011 will go down in the books as a year where the market borrowed a page from Macbeth; "full of sound and fury, signifying nothing." Although the broader stock indexes look to end the year close to flat, that does not mean that investors could not find profits in particular areas of the market. In particular, there were a few areas where ETF investors found notable success in 2011. (For more, see An Inside Look At ETF Construction.)
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Treasury Bond ETFs
Although many market commentators and armchair economists believe that current Federal Reserve policies will ultimately end in tears, 2011 was nevertheless still a good year to hold certain Treasury bond ETFs. The PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ARCA:ZROZ) had delivered a 50% year-to-date total return as of the end of November; the single best performance of any ETF this year. Close behind was the Vanguard Extended Duration Treasury Index ETF (ARCA:EDV) at 47%. Both funds are alike, in that they focus their holdings on long-dated zero-coupon Treasury bonds; the bonds most sensitive to interest rates.
Resources Still a Place To Be
Although the six best funds in terms of year-to-date total market returns have been bond funds, resources had their good performers as well. Agricultural commodity prices have been all over the place and industrial metals like copper have not necessarily been strong, but other commodities have performed well. The Unites States Brent Oil Fund (ARCA:BNO) had delivered a 21% return through the end of November.
Gold has lost a bit of its shine, but gold ETFs still outperformed dedicated stock ETFs. Familiar names like SPDR Gold Trust (ARCA:GLD), ETFS Physical Swiss Gold Shares (ARCA:SGOL) and iShares Gold Trust (ARCA:IAU) all delivered very similar returns in the low 20% area.
One interesting, albeit small, ETF deserves a special mention here. The UBS E-TRACS S&P 500 Gold Hedged ETF (ARCA:SPGH) is an interesting fund. It basically looks to mimic the performance of investing equal dollar amounts in the S&P 500 Total Return Index (large cap stocks) and near-term COMEX gold futures contracts. To the extent that gold offsets declines in the value of the U.S. dollar, then this fund offers exposure to stocks hedged against declines in the dollar.
Amid the Treasury bond ETFs and precious metal funds, another bond fund has slipped into the top performers list. The SPDR Nuveen Barclays Capital Build America Bond ETF (ARCA:BABS) invests in these special municipal securities and has delivered better than 20% total returns this year.
Slimmer Pickings for Stocks
An investor has to scroll down the list a bit before finding much in the way of top-performing stock ETFs. Curiously, although it has been a rather maligned year for health care, two health care ETFs stand near the top of the list. The iShares Dow Jones US Pharmaceuticals ETF (ARCA:IHE) has posted a high-teens total return so far this year, while the Biotech HOLDRS (ARCA:BBH) has come in about one point below.
The Bottom Line
Certainly no one knows what is in store for 2012. Will gold continue an historically improbable run through yet another year? Is there any capacity for interest rates to head lower and deliver still more returns for high-duration funds? Or will this be a year where leveraged stock funds or international ETFs rise to the top? As always, the regular investing rules should apply; investors should do their homework, diversify their holdings and walk that fine line between enlightened self-interest and greed. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)
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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.