After watching their portfolios take devastating blows in 2008, many investors hoped that a new year would bring a reversal of fortune and a recovery of lost assets. After the first two months of the year tested resolve, things finally took a turn for the better in March, and long climb upwards began. Most equity ETFs experienced solid gains in 2009, adding more than 20% on the year. But as always, some fared better than others, with several funds outpacing broad-based benchmarks by a considerable margin. And then there are the handful of ETFs highlighted below that delivered enormous gains.
These funds have each gained at least 85% this year, putting them in the top two percent of all equity ETFs in our ETF Screener. It should be noted that only funds operating for all of 2009 have been included in this list (although we did bend this rule a bit for one fund with particularly stellar results). For more reports at the year’s best, sign up for our free ETF newsletter, or take a look at the complete rundown of 2009 winners in every asset class.
10. SPDR S&P Emerging Markets Small Cap ETF (EWX)
Most investors choose to achieve emerging markets exposure through funds that invest primarily in mega cap companies (such as VWO and EEM). But EWX, which is based on an index that has a median market capitalization of under $300 million, has outperformed these more popular ETFs by a wide margin in 2009, gaining 83% (EEM is up about 62% year-to-date).
EWZ maintains a much smaller allocation to BRIC economies that most emerging markets funds, allocating about as much to these four countries as it does to Taiwan (read about why many investors consider Taiwan to be a developed market here).
9. iShares MSCI Turkey Investable Market Index Fund (TUR)
When looking for international equity exposure, most investors likely don’t turn to Turkey, the Eurasian nation with one of the world’s youngest populations and a strategic location between Europe and the Middle East. TUR has gained almost 90% so far in 2009, thanks in large part to a booming financial sector that accounts for about half of the fund’s assets (see TUR’s holdings here).
Turkey now finds itself in an interesting position caught both geographically and economically between the developed economies of Western Europe and the less stable Middle East. The country is home to (see a thorough review of the Turkey ETF here).
8. Claymore/AlphaShares China Small Cap Index ETF (HAO)
With much of the developed economy contracting through the first half of 2009, China is expected to account for a significant portion of global GDP growth, and has cemented its status as the leader of the worldwide recovery efforts. The Chinese economy is firing on all cylinders — energy, technology, industrials, and consumer products are booming — and investors in China ETFs have watched their assets surge this year. The small-cap focused HAO has led the way, posting gains of 91%. The much larger iShares FTSE/Xinhua China 25 Index Fund (FXI) has gained about 43% on the year – an impressive tally, but less than half the return of HAO.
7. SPDR S&P Emerging Latin America ETF (GML)
Beyond Brazil (we’re getting to that ETF), the Latin American economies of Mexico, Chile, and Peru have also delivered big returns in 2009. GML has exposure to all of these countries, and is up about 93% year-to-date. Latin American economies suffered in 2008 as demand for many commodities dried up in connection with a pronounced downturn in the global manufacturing sector. But factories are now coming back online, and demand for raw materials has surged, particularly in the emerging markets of China and India (see GML’s fact sheet here).
GML isn’t the only Latin American fund to post big gains so far this year: the iShares Latin America 40 Index (ILF) is up 83% on the year while the Global X/InterBolsa FTSE Colombia 20 ETF (GXG) has gained 96% since its launch in February.
6. iPath MSCI India ETN (INP)
Not to be outdone by fellow BRIC economies, India turned in an impressive 2009 that saw INP gain 94%. This ETN’s big jump came in May, when the election of the pro-business Indian Natural Congress sent equity markets up 25% in a single session. But Indian equity markets surged throughout the rest of the year as well as the economy resumed its impressive expansion following the global downturn.
5. Market Vectors Steel Index ETF (SLX)
When the recent recession hit, need for industrial and building materials sunk, and steel prices sunk along with other industrial metals. Facing weakening demand, many steel mills slashed operations and began incurring big losses (see SLX’s fundamentals here).
But as the economy has rebounded, prices have recovered and mills have seen a big uptick in orders for all types of steel products. SLX has gained about 104% this year, and is up almost 150% from the bear market lows in March.
4. iShares MSCI Brazil Index Fund (EWZ)
The highlight of 2009 for many Brazilians was likely the naming of Rio de Janeiro as the host of the 2016 Olympic Games, but the year was full of memorable highs for investors in Brazilian equities. “The impact of the global economic slowdown on Brazil’s economy was shorter and less severe than in many other parts of the world,” writes Alastair Stewart, noting that consumer demand is now driving the economy forward.
EWZ has added about 111% so far in 2009, making it one of the top performing emerging market funds. Another Brazil ETF, the Market Vectors Brazil Small-Cap ETF (BRF) also performed well, gaining almost 90% since its inception in May.
3. Market Vectors Coal ETF (KOL)
Because coal is used heavily in power generation and steel production, need for this resource plummeted in 2008 as manufacturing activity and raw material demand sunk. But as shifts came back online and orders from emerging markets surged, coal prices recovered and the stocks of companies engaged in the mining and production of the energy source soared. KOL has gained more than 130% in 2009, handsomely rewarding investors who were fortunate enough to get in at the true market bottom (see KOL’s technicals here).
Also delivering impressive results in 2009 was the PowerShares Global Coal Portfolio (PKOL), which is up a whopping 122% for the year.
2. Market Vectors Russia ETF (RSX)
Given its dependence on the energy sector, an investment in the Russian equities can be extremely risky. But this emerging economy surged in 2009 as a recovery in prices boosted government revenues. Significant obstacles remain on the road to recovery, but Russia is expected to show further expansion in the fourth quarter and deliver modest growth in 2010.
Russia’s stellar performance means that all four BRIC economies found a place among the best performers of 2009, highlighting the importance of an allocation to this bloc of emerging markets. In addition to country-specific exposure, there are several ETFs offering diversified exposure to these four countries (see a list here).
1. Market Vectors Indonesia Index ETF (IDX)
The year’s best performer has been the Market Vectors Indonesia Index ETF (IDX), which has gained almost 160% since its launch in mid-January (technically, IDX hasn’t been trading for all of 2009). One of the lesser-known emerging markets, Indonesia is now home to one of the world’s fastest-growing economies. Indonesia is a commodity-rich nation, home to ten highly-prized commodities such as coffee, palm oil, rubber, and rice (see IDX’s performance charts here).
IDX is diversified across all sectors of the economy, including exposure to financials, materials, and energy companies.
Looking through the funds above, a few trends begin to emerge. Many of the industries that were hit the hardest on the way down (e.g., coal, steel, semiconductors) are now leading the way higher. The losers of 2008 have become the winners of 2009. It’s also interesting to note that four of the top five performers are Van Eck ETFs.
It’s also interesting to note that most of the year’s biggest gainers have limited exposure to U.S. markets, with several emerging economies making the list. U.S. markets bounced back in 2009 after a horrendous performance in 2008, but it has become clear that the emerging economies will take the lead in the current recovery effort, and developed world powers will follow behind. With unemployment above 10% and the challenge of winding down a massive stimulus package still ahead, slow but positive economic growth would be a great success for the U.S. economy. But the U.S. is hardly alone, and is actually in far better shape than many developed European and Asian economies.
Eight of the year’s ten best performers are emerging markets, highlighting a shift in the strategies of many investors away from domestic equities and towards more diversified international exposure (view our Emerging Markets ETF Center for more reading about opportunities).
Disclosure: No positions at time of writing.