Looking Back At Our ETF Ideas For 2011

by on December 20, 2011 | ETFs Mentioned:

With snow now blanketing a big part of the country and 2012 just a few weeks away, looking back at the past year becomes a popular activity. For many portfolios, 2011 has been marked by big swings that seem to be leaving investors right about where they started; there has been plenty of activity over the last 11 months, but little to show for it in way of returns.

Like many others, we put forth a list of actionable ETF ideas that we believed were positioned to perform well in 2011 at the end of last year, laying out the investment thesis behind 11 exchange-traded products that we thought would thrive this year. With 2011 coming to a close, it’s time to take a look back at our predictions for this year, noting some big wins and lamenting a few calls [see 11 Rapid Fire ETF Ideas For 2011]:

“Rapid Fire” ETF Ideas
Ticker YTD*
PSP -25.2%
XOP -7.2%
CHIX -25.0%
IAU +11.8%
EUO -0.6%
HYD +10.3%
INXX -44.7%
XLK -0.7%
REMX -35.5%
EIS -32.4%
CEW -8.6%
*Thru 12/19/2011

1. PowerShares Listed Private Equity (PSP)

Idea Recap: The return of the IPO market this year was supposed to be a boon to private equity firms that were still reeling from the recent recession. PSP opened the year well below its pre-downturn highs, indicating plenty of potential on the upside.

How It Played Out: PSP endured a rocky 2011, as ongoing risk aversion and liquidity concerns provided headwinds. PSP is down about 25% so far on the year.

Revised Outlook: The further declines make an even more attractive entry point for an asset class that maintains tremendous long term potential.

2. SPDR S&P Oil & Gas Exploration & Production (XOP)

Idea Recap: With spending on exploration expected to climb to new highs in 2011, XOP seemed like a logical way to capture the rebound of the industry.

How It Played Out: With up-and-down energy prices, XOP has largely moved sideways as well. More recently, declines in energy ETFs have hurt XOP; this ETF is down about 7% so far on the year.

Revised Outlook: Big Oil is expected to continue to spend to find new deposits, but any success in development of clean energy alternatives could pose a major risk.

3. Global X China Financials ETF (CHIX)

Idea Recap: China banks were poised to benefit from a steady wave of new customers, and the interest rate environment was not much of a threat heading into this year.

How It Played Out: Not well at all. Chinese banks have been hammered as growth has slowed and concerns about inflation have intensified. CHIX is down about 25% on the year.

Revised Outlook: China’s long-term growth projections are still promising, even if there are short-term obstacles. Additional volatility is likely ahead, but the decline put CHIX at an attractive entry point for those in it for the long haul.

4. iShares COMEX Gold Trust (IAU)

Idea Recap: Gold’s safe haven appeal was expected to push the metal higher this year with a number of concerns over the health of the global economy hovering as 2011 kicked off.

How It Played Out: Gold has indeed performed well–despite some big fluctuations in recent months. IAU is up about 12% on the year.

Revised Outlook: It’s hard to exclude gold from any portfolio, even if the allocation is minor. Prices are subject to the whims of the market, but the lingering uncertainty makes the precious metal appealing.

5. ProShares UltraShort Euro (EUO)

Idea Recap: At the beginning of the year Europe was in serious trouble, and the unsustainable debt situations were expected to weigh on the currency.

How It Played Out: The crisis in Europe has only intensified, and the euro has indeed been pummeled. The daily reset feature of EUO has caused this fund to be down slightly on the year, but this ETF has certainly delivered some impressive gains during stretches.

Revised Outlook: This ETF probably isn’t appropriate with buy-and-hold strategies, but can be a powerful tool for betting on what we believe will be additional bumps in the road.

6. Market Vectors High Yield Municipal Bond ETF (HYD)

Idea Recap: The yield on HYD was simply too juicy to ignore–even with all the challenges facing municipal debt.

How It Played Out: This fund has returned about 10% in 2011, slightly higher than the yield at the beginning of the year. For yield-hungry investors, HYD has been a hit.

Revised Outlook: The yield on HYD is still pretty attractive; the tax equivalent 30-Day SEC yield on this fund sits at a healthy 7.7% for those in the 25% tax bracket. Those paying even higher rates might find even more value in this ETF.

7. India Infrastructure Index Fund (INXX)

Idea Recap: Infrastructure has emerged as a major obstacle to India’s long-term growth, and we suspected that the government would move aggressively to address this issue.

How It Played Out: Indian stocks have been hammered in 2011, as one of the best performers of the past few years has slumped horribly amidst slowing growth and inflationary pressures. INXX was our biggest miss for this year; the fund is down about 45%.

Revised Outlook: This ETF looks like a great bargain at the current price; India still plans to spend massive amounts of money to update an outdated infrastructure, and many of the components of INXX are positioned to benefit.

8. Technology SPDR (XLK)

Idea Recap: Companies that put off the “tech refresh cycle” during the downturn were expected to loosen the purse strings in 2011, a trend that we thought would benefit XLK.

How It Played Out: Tech has been one of the relatively pleasant surprises in 2011; XLK is down only about 1%, while the S&P 500 is down about 3%.

Revised Outlook: There is still room for tech to run, especially with the consumer-discretionary part of this sector showing strength.

9. Market Vector Rare Earth/Strategic Metals ETF (REMX)

Idea Recap: Wild card China was expected to slash exports of rare earth metals, driving up prices for the critical raw materials around the globe.

How It Played Out: China has indeed lowered exports, but REMX hasn’t benefited as we thought it might. This ETF is down about 35% on the year, the result of general risk aversion and sagging demand.

Revised Outlook: The rare earth metals space is all but guaranteed to grow in coming years, as the importance of these resources expands. REMX maintains promising long-term potential, though this fund will probably continue to be quite volatile.

10. iShares MSCI Israel Index Fund (EIS)

Idea Recap: Israel seemed to be positioned to benefit from a newfound energy wealth, and we thought the country could turn a massive natural gas discovery into a boost for the entire economy.

How It Played Out: Israel’s economy buckled under geopolitical tensions in the region, and this fund lost close to a third of its value so far in 2011.

Revised Outlook: The Middle East is certainly a risky bet in the current environment; there is tremendous geopolitical risk, but also opportunities for some nice returns.

11. WisdomTree Dreyfus Emerging Currency Fund (CEW)

Idea Recap: CEW offers dollar diversification, allowing investors to profit from high yields available in emerging markets and to benefit from movements away from the greenback.

How It Played Out: CEW made some nice distributions, but the flight towards the safety of the dollar eroded the value of this fund. So far, CEW is down about 8% in 2011.

Revised Outlook: Again, the long term potential seems to be promising; emerging markets currencies should appreciate in coming years, and CEW is a unique tool for playing that trend while also generating some nice yield.

Disclosure: No positions at time of writing.