5 ETFs That Gave Unexpected Gifts In 2012

by on December 22, 2012 | ETFs Mentioned:

Despite the recent worries about the fiscal cliff and the outcome of the Presidential election, 2012 has been a generally strong year for the U.S. markets. Most broad indexes have surged and produced returns in the double digits over the last year. While many of the best performers–such as technology or biotech stocks–are not that surprising given their growth-oriented nature, there have been quite a few “interesting” winners in 2012.

Generally perceived as very risky, these market segments–along with their respective exchange-traded funds that track them–have done quite well for investors in the uncertain economic environment. Past performance is no guarantee of future results; however, it is important to see where you’ve been in order to see where you’re going [sign up for the free ETFdb newsletter].

Here we present the five ETFs with surprisingly strong 2012 performances:

EGShares India Consumer ETF

As the I in BRIC, India continues to draw investors to its borders. Featuring a stable democracy, high economic growth and a growing middle class population, the nation is one of the hallmarks of the emerging market thesis. Tapping into that increasingly wealthy population has certainly been fruitful for investors this past year.

The EGShares India Consumer ETF (INCO) seeks to replicate the price and yield performance of the free-float adjusted market cap INDXX India Consumer Index. The ETF tracks a basket of 30 Indian consumer goods and services stocks traded on the Bombay Stock Exchange. Top holdings include United Spirits Ltd and Titan Industries. Focusing on such a narrow slice of the Indian market has paid off for investors. As of December 19th, the fund has returned a whopping 53.12% year-to-date.

PowerShares DB Italian Treasury Bond ETN

Like the BRICs, the PIIGS continue to gain notoriety, although for a completely different reason. Battling Spain for the next shoe to drop, Italy was seen as Europe’s next problem child requiring a bailout and constant hand holding. As such, Italian bonds fell hard in price. But as The European Central Bank continued to do its own QE magic and buy bonds, Italy was able complete its 2012 debt funding needs. Investors who bet on the cheap and risky IOUs were rewarded handsomely.

The PowerShares DB Italian Treasury Bond ETN (ITLY) provides exposure to the U.S. dollar value of the returns of an Italian bond futures index. The note tracks the Republic of Italy government-issued debt securities with an original term of no longer than 16 years and a remaining term to maturity of not less than 8 years and 6 months and not more than 11 years as of the futures contract delivery date. As prices for Italy’s debt have risen, the ETN has managed to return a total of 31.03% year-to-date as of December 14th.

iShares MSCI Europe Financials Index

Given all of Europe’s fiscal woes, betting on the nation’s banks and insurance firms seemed like a very risky proposition indeed. However, as the PIIGS crisis and various debt issues seem to be moving towards closure, Europe’s financial sector proved to be one of the best places to invest in 2012.

Featuring top holdings like banks HSBC (HBC) and Banco Santander (NYSE: SAN), the iShares MSCI Europe Financials Index (EUFN) managed to produce a 33.97% year-to-date return. 

Market Vectors Egypt Index ETF

As all the riots, social upheaval and political problems gripped Egypt during 2011, the Market Vectors Egypt Index ETF (EGPT) fell by more than 50%. For contrarian investors who bought into the fact that the nation is one of the largest economies in the Middle East and that Egypt will be one of the replacement nations for the BRICs, the road has been paved with gold.

Tracking 26 different Egyptian firms–including a healthy dose of small caps–the Van Eck sponsored ETF has surged as the frontier nation begins to get its act together. EGPT has managed to outperform broad emerging markets measures in 2012 and has produced a staggering 44.84% return this year.

iPath DJ-UBS Tin TR Sub-Index ETN

While most investors have placed their bets on metals such as gold, silver and copper, those going against the grain have been richly rewarded in 2012. Tin may not seem like an exciting growth story, but it’s quickly becoming the commodity du jour. Global tin production sits at roughly 290,000 tons. That amount has failed to meet demand for several years now and tin prices have risen accordingly. Adding in onetime events–like Indonesia’s recent decision to idle capacity–and you have a recipe for higher long term tin prices.

This has benefited investors in the iPath DJ-UBS Tin TR Sub-Index ETN (JJT). The ETN tracks futures contracts tied to the metal and has surged 22.65% this year as value seeking investors have bet big.

Disclosure: No positions at time of writing.