Checking In: Top 5 Equity ETFs Of 2010

by on December 21, 2011 | ETFs Mentioned:

This past year has shaped out to be nothing short of a roller coaster ride for investors. Confidence in the global economic recovery was rattled after disaster struck in Japan; waves of uncertainty spread across financial markets as the economic superpower coped with one of the worst earthquakes in its history. On the home front, investors struggled to regain confidence in the economic recovery after Standard & Poor’s downgraded the United State’s credit quality, adding to the cloud of uncertainty looming over financial markets. With no time to catch a break, the bad news seemed to pour out all at once; resurfacing European debt woes paved the way for volatile trading as lawmakers continue to struggle to ensure stability in the financially fragile currency bloc [see Three Long/Short Ideas For Euro Zone Debt Drama].

Profits from 2010 have slowly evaporated from many asset classes given the uncertain economic backdrop, which has inevitably pushed forth a wave of risk-aversion and profit taking. While emerging market equities and commodities broadly soared higher in 2010, this year has been riddled with roadblocks, prompting many investors too seek refuge in bonds and defensive corners of the stock market instead. Below we check in on the top five performing equities ETFs of 2010, to see how they have fared this past year in comparison [see Top Ten Equity ETFs Of 2010]:

5. HOLDRS Internet Infrastructure (IIH)

IIH consists of companies that provide software and services to allow Internet companies to better manage their Web sites and improve online communications. Much like the other HOLDRS products, IIH doesn’t offer much from a diversification perspective; its underlying portfolio consists of seven individual securities and VeriSign Inc., the fund’s top holding, accounts for close to two thirds of total assets [see also ETF Shakeup: HOLDRS Headed For Extinction, ELEMENTS To Follow?].

Despite gaining upwards of 50% in 2010, this fund took a turn for the worst in 2011 as risk-aversion strategies have prompted many investors sell out of riskier equities, including the technology sector, and reallocate their capital into more defensive holdings like fixed income and stable dividend paying securities. Additionally, the fund’s top-heavy portfolio hasn’t done much to help soften the volatility stemming from the inherent company-specific risk. IIH has lost around 17% so far in 2011, lagging behind the domestic technology sector, as represented by QQQ, which has struggled to clinch minor gains on the year.

4. iShares MSCI Thailand Index Fund (THD)

THD provides investors with exposure to the performance of the Thai equity market; its portfolio consists of 86 stocks diversified across all major economic sectors, including significant weightings to financial services, energy, and basic materials companies [see also Country ETFs With Rock Bottom Unemployment Rates]. This emerging market ETF was able to clinch impressive gains of 53% in 2010.

Thailand was steaming with activity in 2010 as the nation’s export-dependent economy thrived from healthy demand from both developed and emerging markets alike. Slowing growth in Europe coupled with a stagnant U.S. recovery in 2011 have added to the mountain of uncertainty, creating a major drag for Thailand’s multinational businesses. Additionally, China’s economic growth has shown signs of cooling off, which has inevitably led many to worry that growth in its neighboring exporters will soon slow down as well. Broad-based selling pressures across emerging markets have dragged down THD by 4% so far in 2011.

3. iShares MSCI All Peru Capped Index Fund (EPU)

EPU provides investors with access to the performance of the Peruvian equity market through a basket of 30 securities. Nearly half of the fund’s assets are allocated to companies in the basic materials sector, which has proven to be costly given the global slowdown in demand for raw materials this past year [see also ETF Insider: Cold Turkey For Europe].

Peru’s commodity-centric economy lost a bit of its luster this year as economic uncertainties took their toll on companies reliant on foreign demand. Volatile commodity prices and uncertainty in developed markets paved the way for selling pressures in EPU, as investors took profits from last year’s stellar gains of close to 60%. EPU is down about 23% in 2011, falling in line broad emerging markets performance, as represented by EEM, which is down 21%.

2. Market Vectors Junior Gold Miners ETF (GDXJ)

GDXJ allows for investors to tap into the small cap equity segment of the commodity-producers sector. The fund’s underlying index provides exposure to a global universe of publicly traded small and mid cap size companies that generate at least 50% of their revenues from gold and/or silver mining [see also Three Reasons Why Gold Is Overvalued].

Mining equities have been severely beaten down over the past year thanks to broad-based selling pressures across all corners of the equity market. Despite gaining 60% in 2010, GDXJ has struggled to remain afloat given its focus on “riskier” smaller mining firms. Investors have predominantly flocked to domestic large cap equities in recent months in search for stability; GDXJ is down 33% for the year, whereas its large cap counterpart, GDX, is down only 14%.

1. HOLDRS B2B Internet (BHH)

BHH originally consisted of 20 companies offering business-to-business products and services via the Internet; however, the fund’s basket has dwindled down to a paltry two stock  portfolio [see BHH Holdings].

This fund turned in gains of over 70% in 2010 as both of its individual holdings posted monster increases in share price. Surprisingly, the very high level of company-specific risk associated with this product has done little to slow its ascent; BHH has gained 21% in 2011. The fund’s top holding Ariba Inc., which accounts for over 90% of total assets, has enjoyed robust gains of over 30% this year, helping to push BHH higher.

Disclosure: Photo courtesy of  Marek Ślusarczyk. No positions at time of writing.