Five ETF Surprises From The First Half

by on June 28, 2012 | Updated July 27, 2012 | ETFs Mentioned:

As an up-and-down (and up again) first half of the year draws to a close, many portfolios have managed to squeeze out moderate gains so far in 2012. Looking around at the various exchange-traded products reveals some interesting results after what can only be described as an exciting six month stretch. While many ETFs have performed as one might expect, given the macroeconomic environment, there are a number of surprises as well [see also 5 Best Performing Commodity ETFs Over The Last 3 Years].

Below, we profile a handful of ETFs and ETNs with YTD performance figures at the mid point (almost) of 2012 that are not quite what we might have expected [for more ETF insights, sign up for the free ETFdb newsletter]: 

Daily Inverse VIX Short Term ETN (XIV): Up 58%

Who would have guessed that betting against volatility would have been one of the most successful strategies during the first half of 2012? In a year that has been marked with twists and turns, markets have seen plenty of volatility. But despite a few spikes in the VIX, this ETN has delivered some huge gains so far this year. Though the VIX is relatively close to its beginning of year level, XIV has thrived thanks to consistently seep contango in the VIX futures market.

Market Vectors High Yield Municipal Index ETF (HYD): Up 10%

By all accounts, the past six months or so should have been a tumultuous stretch for junk municipal bonds. As the U.S. debt burden continues to grow and fights over the ceiling still loom, many would have expected the “flight to quality” to benefit bonds with strong credit ratings at the expense of those that are in junk territory.

Don’t tell Meredith Whitney, but low quality municipal bonds have done anything but head towards default. Anyone who opened a position in HYD at the beginning of the year has no doubt been thrilled with the results to this point [ETFdb Pro members can see the Monthly Dividend ETFdb Portfolio; sign up for a free 7-day trial to view more than 40 all ETF model portfolios].

PowerShares DB Italian Treasury Bond Futures ETN (ITLY): Up 13%

If you were expecting that Italian government bonds would have been hammered by the crisis in Europe, think again. ITLY, which offers exposure to an index comprised of Italian government bond futures, has posted some truly impressive gains this year.

ITLY’s performance is even more impressive when compared to some of the ETPs offering exposure to German Bunds; the Italian ETN has done much better than BUND and BUNL through the first six months of the year.

MSCI Ireland Capped Investable Market Index Fund (EIRL): Up 4%

Ireland was one of the first European economies to accept bailout funds, and has struggled mightily over the past few years after a construction boom and bust left the economy in shambles. Given the chaos surrounding the other members of the so called PIIGS bloc, one might suspect that the pure play Ireland ETF would be deep in the red through the first half of 2012. But EIRL has actually been one of the best performers in the Europe Equities ETFdb Category over the past six months; only the Belgian ETF has fared better (speaking of surprises…).

Gold SPDR (GLD): Up 0.4%

The first half of 2012 seemed like the perfect environment for gold. Uncertainty over the euro zone–and the potential collapse of one of the world’s largest fiat currencies–has been a major theme. Expectations over an eventual uptick in inflation remain, and many emerging markets (e.g., India) have seen runaway inflation already. And to top it off, central banks have been buying gold like it’s 1965.

Those factors would seemingly combine to create a gold boom, yet GLD has posted only very moderate gains so far in 2012. It’s hard to complain about a positive return on the year, but GLD’s gains so far have been less-than-impressive [see also Why No Investor Should Own GLD].

Disclosure: No positions at time of writing.