It has been a good year overall for the equity markets around the globe, and most of the over 1,000 ETFs have also enjoyed solid gains. Five ETFs that are closing out the year on a high note from a diverse group of subsectors are highlighted below. The list gives investors a reason to diversify because it shows how ETFs from very different backgrounds can return above average gains during the same time period. (For more, see 4 ETF strategies For A Down Market.)
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Commodities have had a solid year with everything from gold to sugar rallying to new highs. As the year comes to an end, the PowerShares DB Agriculture ETF (NYSE:DBA) is trading at a new two-year high on the back of higher prices in commodities such as soybeans, corn, coffee and sugar. The ETF is composed of 11 agricultural commodities with the heaviest concentration in cattle and soybeans. As the demand for the commodities has increased due to the growth in emerging markets, and supply has fallen with inclement weather, DBA has been a big winner. Look for the trend to continue in 2011.
Another niche ETF hitting new two-year high is the PowerShares Global Water ETF (NYSE:PIO). The ETF is composed of stocks from around the world that include water utilities, water infrastructure firms and material companies. The United States makes up 30% of the allocation, with Japan and the U.K. combining for 22%. The water sector is an interesting play in the emerging markets as demand increases for clean water; in the developed markets it is all about improving poor water infrastructure. (For more, see Water, A Precious Commodity.)
The Guggenheim Canadian Energy Income ETF (NYSE:ENY) is an ETF that invests 100% in Canadian-based energy companies from two sectors. Depending on the strength of the price of oil, the ETF will either concentrate on energy income trusts or high-growing Canadian oil sands stocks. Currently the ETF is heavily weighted in the high income producing energy trusts, which have had a solid rally in 2010; ENY is at a two-year high. The current yield on the ETF is 3.44%.
The SPDR Capital Convertible Securities ETF (NYSE:CWB) is an ETF composed of U.S. convertible bonds with an outstanding balance of greater than $500 million. There are currently 113 bonds that make up the portfolio with a yield of 3.12%. The ETF has been able to sidestep the selling that has hit the traditional bond ETFs and hit a new high in late December. CWB is a play on a niche asset class as well as an income generator.
United States Gasoline Fund (NYSE:UGA) is an exchange-traded security that is designed to track the movements of the unleaded gasoline futures prices. The fund has rallied on the back of higher oil prices and increased demand for gasoline. A fresh two-year high was achieved in late December and as long as the economy continues to improve, UGA should continue its current uptrend.
The Bottom Line
The five ETFs mentioned are very diverse, but there is one underlying theme they have in common: their dependence on the overall global economy. Another major market sell-off will likely hurt all the ETFs and they will not be a place to hide in the event of a bear market. Keep this in mind when considering a purchase of any or all of the ETFs mentioned. (For more, see 7 Reasons To Pick ETFs Over Stocks.)
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