September’s ETF Studs: Five Funds That Thrived During A Wild Month

by on October 10, 2011 | ETFs Mentioned:

September was one of the worst months in years for global equity markets. Volatility swept throughout every corner of the financial markets as escalating Euro zone debt woes worried investors of an impending crisis. Investor confidence has been slowly eroding given the concerning global economic outlook, prompting many to pull out of the markets all together. Fear took charge in September as volatile range-bound trading spooked investors, leading to violent sell-offs across all asset classes, especially emerging market stocks. Broad equity indexes were humbled this past month, with SPY down 7.4%, while emerging markets, as tracked by EEM, were down 17.9%. Even safe havens struggled amidst the market turmoil; GLD was down just over 10% on the month [see ETF Insider: Can Earnings Trump Euro Drama?].

While the vast majority of ETFs lost ground in September, a handful of products–beyond inverse and leveraged funds–managed to turn in some impressive gains. Below we have highlighted some impressive performances during an all-around ugly month:

  • MSCI Brazil Currency Hedged Equity Fund (DBBR): This ETF was down 1.3% for the month, which is not impressive my any means, however, this performance is quite noteworthy considering that its unhedged counterpart, EWZ, was down a staggering 20.6% in this same time period. DBBR is designed to provide exposure to Brazilian equity markets, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and Brazilian real. The vast difference in performance between DBBR and EWZ demonstrates the potentially adverse effects of currency fluctuations [see charts of DBBR here].
  • PowerShares DB U.S. Dollar Index Bullish (UUP): The U.S. has no shortage of issues, but September proved that the greenback still has plenty of appeal as a safe haven. UUP tracks the performance of being long the U.S. dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. This ETF was up 5.9% on the month as investors broadly sold-off riskier currencies, primarily the euro, in search for safety. The recent peg of the Swiss franc to the euro has further paved the way higher for safe haven demand and UUP has been attracting handsome inflows [see more on UUP's Fact Sheet].
  • Barclays ETN+ S&P VEQTOR ETN (VQT): This quirky ETN hasn’t really been embraced by investors, but its performance during a rocky September illustrates that it’s most certainly worth a closer look. VQT provides broad equity market exposure with an implied volatility hedge by dynamically allocating its notional investments among three components: equity, volatility, and cash [see VQT Fact Sheet]. This ETF made the switch from equity exposure to volatility during the month, allowing it to profit from the chaos and turn in a respectable gain of just over 3% for the month.
  • PowerShares Build America Bond Portfolio (BAB): Even the fixed income space faced serious headwinds in September, as many investors found themselves taking profits in the bond market fearing that the economy would take another turn for the worst. Build American Bonds were an exception, and BAB took on appeal amidst the uncertainty, gaining a hefty 5.2% in September. In this same time period, the domestic bond market, as represented by AGG, struggled to gain much ground and inched higher by less than a full percentage point [see Our Better-Than-AGG Total Bond Market Portfolio].
  • iPath S&P 500 VIX Short-Term Futures ETN (VXX): Not surprisingly, this VIX product thrived during one of the most brutal months on Wall Street, gaining close to a whopping 37%. VXX offers exposure to a daily rolling long position in the first and second month VIX futures contracts, which allowed it to surge higher while equity markets plummeted [see New VIX ETFs Hit The Market]. This VIX Index remains above 30, which means that stocks may face more volatility in the coming weeks as investor confidence slowly rebuilds.

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Disclosure: No positions at time of writing.