For many portfolios, exchange traded funds (ETFs) have been the security type du jour. After all, their tax efficient nature, intraday tradability and ability to access various nations and asset classes make them a top way to design market beating portfolios. Wall Street has given what investors want and continues to churn out more innovative ETF products. According to XTF.com, ETF assets have grown by roughly $242 billion, in 2012 for a gain of 22.8%.
However, not every ETF that Wall Street creates is a star right out of the gate. Based on market conditions, some have better years than others. And 2012 was certainly one of those years.
Here's a look back at 2012's ETF winners.
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VelocityShares Daily Inverse VIX Short-Term ETN
The king of the ETF/ETN hill in 2012 was the VelocityShares Daily Inverse VIX Short-Term ETN (ARCA:XIV) with a total return of 142% year to date. The fund acts as a measure of the lack of volatility or lack of fear in the market by being an inverse measure of the VIX. With the markets moving up this year, the lack of fear has generally subsided. That made the inverse ETF a hot bet and lead to its outperformance.
The VelocityShares Daily Inverse VIX Short-Term ETN charges a huge 1.35% in expenses, but that price has been warranted given the ETN's massive return in 2012.
iShares Dow Jones US Home Construction
As one of main reasons why the credit crisis and the Great Recession occurred in the first place, it's amazing to see a housing related ETF as one the year's best performers. Yet, the iShares Dow Jones US Home Construction (ARCA:ITB) managed to rack up an impressive 71% return year to date as its holdings like builders Toll Brothers (NYSE:TOL) and home-based retailers like Lowe's (NYSE:LOW) have put up strong performances in 2012.
With the housing sector continuing to improve, the ETF could see similar gains in the new year.
SEE: Building An All-ETF Portfolio
iShares MSCI Turkey Invest Market
When most investors look towards emerging markets, they tend to focus on the BRIC nations like China or cast a wide net in funds like the Vanguard Emerging Market Index (ARCA:VWO). However, some of the best returns can be found in some off the beaten path nations.
The Middle Eastern nation of Turkey is one example and the iShares MSCI Turkey (ARCA:TUR) is the way to play it. Turkey is undergoing a major transition and its booming economy and growing middle class have fueled domestic growth. That boom allowed the ETF to realize a total return of 53% year to date. That's not too shabby considering most investors can't probably find Turkey on a map.
Guggenheim China Real Estate
Like the United States, China had a real estate problem of its own. Property prices in the emerging market surged as hot money continued to flow into the sector. Beijing, over the last year, stepped up efforts to cool the real estate sector and by in large, those efforts worked. Property prices fell hard.
Since that time, the Chinese government has once again begun heating up its economy with stimulus measures and infrastructure projects. As a result, the hot money has returned to the nation and property prices have resumed their climb. That fact has propelled the property-based Guggenheim China Real Estate ETF (ARCA:TAO) to return 50% year to date.
SEE: The Benefits Of ETF Investing
Market Vectors Biotech ETF
The biotech sector has always been a hot place for hot returns. Many smaller research firms are like lotto tickets - all it takes is a one-hit drug. For example, bio tech Medivation (Nasdaq:MDVN) doubled on the approval of its novel prostate cancer drug, Xtandi. Overall, the values of 230 publicly-traded biotech companies tracked have leaped by an average 38% year to date, according to the BioWorld Stock Report.
That surge of activity, stock gains and drug approvals has been reflected in the Market Vectors Biotech ETF (ARCA:BBH). The fund has risen 47% year to date as more and more future blockbuster drugs have completed their trials.
The Bottom Line
ETFs continue to be a top draw for investors and the previous funds were king of the hill. Overall, the five funds returned stellar results for those early investors who went against the grain and purchased them. Hopefully, the new year will bring equal successes to the market.
At the time of writing, Aaron Levitt did not own any shares in any company mentioned in this article.