With the new year just around the corner, it seems as if 2010 will go down as a generally positive year for investors. Despite numerous and somewhat serious lingering concerns over the health of the global economy, most asset classes have posted impressive gains on the year as the odds of a “double dip” have diminished considerably.
Last year, the list of the best-performing equity ETFs was dominated by emerging markets funds, a trend that continued once again in 2010. But it is not the usual suspects of Brazil, China, and India that have turned in the most impressive results, highlighting the tremendous potential of the world’s lesser-known developing economies. And once again the list of the best-performing equity ETFs of the year includes a number of relative unknowns, demonstrating the appeal of going beyond the “super tickers” that account for a huge portion of industry assets to identify smaller and more targeted ETF options.
Below, we profile the ten top performers among equity ETFs in 2010, a list that includes both sector-specific and country-specific products and reflects on the economic trends that dominated the past year:
10. First Trust Internet ETF (FDN)
Though the investment thesis behind this product is compelling–FDN invests in companies that derive a significant portion of revenues from Internet-related businesses–this ETF includes an assortment of very different companies. From search engines to online retailers to technology firms, the products and services offered by the assets of this ETF are all over the board. But so far in 2010, this combination has worked out quite well for investors, as FDN has gained more than 38% year-to-date [see Internet ETFs: Five Ways To Play].
9. PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ)
PEJ focuses its assets on leisure and entertainment companies, including holdings such as Carnival Corporation, Walt Disney Company, and Chipotle Mexican Grill. This ETF shot up about 42% this year, as the U.S. economy continued a stead recovery from the devastating recession. Now that the recovery is well on its way, consumer spending and discretionary income have increased, paying off nicely for this fund [see also Can Coach Purses And $4 Coffees Drive Consumer Discretionary ETFs?].
8. iShares MSCI Chile Index Fund (ECH)
Measuring the performance of the Chilean equity market, this ETF makes its way into the top ten of 2010 by generating returns of nearly 44%. Unlike most emerging market ETFs, which tend to overweight energy and financials, this fund is heaviest in the utilities (24%) and materials (21%) sectors of the market. Chile is ranked as the most competitive nation in Latin America, and has seen surging growth this year after a rough 2009. Chilean GDP has grown 1.6%, 6.6%, and 7.0% in the first three quarters of 2010, which has helped fuel this ETF into the top ten list for the year. ECH’s appearance in the top ten is quite remarkable, especially considering the massive 8.8 earthquake that hit just of the Chilean coastline earlier in the year, costing the nation somewhere between $4 and $7 billion in insurance claims.
7. PowerShares Dynamic Networking (PXQ)
This fund is comprised of stocks of networking companies, including Riverbed Technology, F5 Networks, and Juniper Networks Inc. This ETF has put up big numbers this year, jumping up approximately 46%. Upon taking a closer look at the holdings, several of which have had impressive years, it seems that this fund is benefiting from the move to cloud computing. A number of these networking firms will be vital to the progressive switch to the cloud, and as that movement becomes a reality, their stock prices have surged.
6. Global X/InterBolsa FTSE Colombia 20 ETF (GXG)
This fund tracks a market cap weighted index of the 20 most liquid stocks in the Colombian equity market. In a more typical emerging fund fashion, this ETF focuses its assets on the financials (41%) and energy (28%) sectors. GXG has returned close to 50% in 2010, thriving off of a prolonged rally in commodity prices and ongoing economic reforms in Colombia. Until the 2008-2009 financial crisis struck the world, Colombia’s GDP had been grown at an increasing rate each year. In 2010, the economy was able to recover from the meager 0.8% growth in 2009, to post GDP growth of 4.5% for this year, surpassing estimates that the nation would only grow by 3.5% [see also Emerging Market ETFs: Seven Factors Every Investor Should Consider].
5. HOLDRS Internet Infrastructure (IIH)
This HOLDRS fund consists of only eight companies, with names like VeriSign, Infospace, and Openwave Systems in its holdings. IIH just beats out GXG for fifth place, with gains of 53% on the year. Though not all of the fund’s holdings had a good year, the top three, which account for about 93% of the fund, had a very strong 2010, boosting this ETF’s performance. In mid-2010 there were heavy legal concerns surrounding VeriSign (which makes up over 50% of IIH), but after a rough June, the company announced an increase in prices for domain names in July, sending the stock skyrocketing for the remainder of the year [see Five Facts About HOLDRS Every Investor Should Know].
4. iShares MSCI Thailand Index Fund (THD)
THD comes in as one of the top performing emerging markets of 2010, continuing an impressive run for the non-BRIC developing economies. Last year, emerging market funds accounted for eight of the top ten gainers, and this year another five made the top ten equity list; THD was recently up about 53% to date in 2010. Thailand, the second largest economy in Southeast Asia, is heavily depended on its exports, which make up two-thirds of total GDP. The first half of 2010 alone saw exports from Thailand grow over 35%. As exports have continued to surge, the economy has been predicted to finish out the year with growth topping 7%. Skyrocketing exports have driven not only the Thai economy, but THD as well in 2010 [see also Invest Like Mark Mobius With This Emerging Market ETF].
3. iShares MSCI All Peru Capped Index Fund (EPU)
EPU tracks an index that measures the performance of the large-cap sector of the Peruvian equity market. This emerging market fund has generated returns of nearly 57% in 2010. While Peru is a fast growing economy, the gains are attributable in part to significant increases in the price of silver in recent months. Silver, one of the top performing commodities this year, has seen its prices soar this year to 30 year highs. Peru is the world’s leading silver exporter, as it accounts for 19% of global production. Three of the top ten holdings of this ETF are mining companies; with silver and copper surging (both of which are major exports of Peru), it makes sense that this fund has had a stellar year.
2. Market Vectors Junior Gold Miners ETF (GDXJ)
GDXJ is an interesting equity fund, as its performance is directly tied to a precious metal commodity. This gold mining fund focuses on small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining. With both silver and gold making impressive runs in 2010, it should be no surprise to see this ETF near the top of the charts. The fund returned about 60% this year, as higher prices for precious metals translated into improved profitability for companies engaged in locating and extracting the metals.
1. HOLDRS B2B Internet (BHH)
The top performing equity of 2010 may come as a bit of a shock to some investors, but given a closer look of the fund’s makeup, its impressive year can be dissected quite easily. BHH has only two holdings: Ariba Inc (86%), and Internet Capital Group (14%), both of which, enjoyed exponential growth in their share prices. This fund returned a whopping 72% for 2010, beating out the rest of the ETF world. The gains for this ETF could be a reflection of our growing economy, as more businesses depend on each other to expand their profits. More specifically, BHH’s strong performance is due to a strong 2010 from Ariba, a provider of collaborative business commerce solutions. ARBA is up more than 90% so far this year, so BHH’s impressive growth is perhaps more reflective of company-specific developments as opposed to a broader economic trend.
Disclosure: Gold photo courtesy of Rob Lavinsky. No positions at time of writing.