The majority of index investors have been able to close out 2011 with positive returns in the month of December. The SPDR S&P 500 ETF (ARCA:SPY) is up about 1% during the month and a number of index funds that had been on hot streaks coming into December have continued to push higher. Here are four ETFs on fire right now. (For related reading, see Exchange-Traded Funds.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Straight to the Bank
After muddling through a challenging Q3, the SPDR KBW Bank ETF (ARCA:KBE) hit its stride in late November. This ETF, which tracks the performance of national money center banks, is up almost 5% during the month of December and over 10% since Thanksgiving.

U.S. banks have been concerned that forthcoming industry regulations might mandate higher capital requirements than the international proposal known as Basel III. Regulators have seemed to relent in the face of pushback from the banking industry. The Federal Reserve's final proposal on Tuesday indicates that banks in the U.S. could potentially face higher capital levels than those called for in Basel III.

Regional banks have also taken part in the recent rally. The SPDR S&P Regional Banking ETF (ARCA:KRE) has risen almost 6% in the month of December and is up about 12% since Thanksgiving. Low interest rates and tight lending spreads will continue to be hurdles for the regional banks in growing their earnings, but they appear to be on much steadier ground than they were a few years ago. (For more information, read ETFs Vs Index Funds: Quantifying The Differences.)

Building Confidence
Shareholders of homebuilding stocks have endured more than their fair share of pain over the course of the past few years. The trend has recently begun to reverse itself. The SPDR S&P Homebuilders ETF (ARCA:XHB) has gained around 2.25% during the month of December and is up almost 10% since Thanksgiving.

The homebuilder confidence index rose for its third consecutive month in December to reach its highest level of 2011. The industry is positioned to profit from record low borrowing costs which could bring additional consumers to the marketplace for a newly constructed home. A sputtering economy is one of the biggest threats to this industry, but for the time being the improvement is welcomed.

One other ETF that has been adding on to its recent gains is the Market Vectors Biotech ETF (AMEX:BBH). The fund is up about 3% during the month of December and around 10% since Thanksgiving. The success of BBH in 2012 will hinge largely upon the ability of large-cap players to generate strong cash flows from their existing products, as this fund only has 26 holdings.

The Bottom Line
The recent rally by banking stocks has enabled index investors to make up some lost ground heading into 2012. Homebuilding and biotech ETFs have also ended the year on a positive note. We will soon see whether the breakouts of these funds are for real or whether they are technical recoveries that may prove to be short-lived. (For related reading, see Technical Analysis.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Billy Fisher did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing

    How ETFs May Save You Thousands

    Being vigilant about the amount you pay and what you get for is important, but adding ETFs into the investment mix fits well with a value-seeking nature.
  2. Mutual Funds & ETFs

    3 Fixed Income ETFs in the Mining Sector

    Learn about the top three metals and mining exchange-traded funds (ETFs), and explore analyses of their characteristics and how investors can benefit from these ETFs.
  3. Chart Advisor

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  4. Investing News

    Top Tips for Diversifying with Mutual Funds

    Are mutual funds becoming obsolete? If they have something to offer, which funds should you consider for diversification?
  5. Professionals

    Top Stocks to Short, Go Long On to Beat the Market

    A long/short portfolio can help weather a variety of market scenarios. Here's how to put one together.
  6. Mutual Funds & ETFs

    Top 4 Asia-Pacific ETFs

    Learn about four of the best-performing exchange-traded funds, or ETFs, that offer investors exposure to the Asia-Pacific region.
  7. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  8. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  9. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  10. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!