7 ETF Types To Be Thankful For

by on November 28, 2013 | ETFs Mentioned:

This year has shaped up to be quite kind to investors as major equity indexes are holding onto double-digit gains ahead of the anticipated Santa Claus rally. Much to the bears’ frustration, the U.S. economy has continued its slow and steady expansion while the Federal Reserve’s commitment to an accommodative monetary policy continues to resonate well on Wall Street [see The Complete History Of The S&P 500 Index].

Amid this bull run, investors have continued to embrace the exchange-traded product structure as the preferred means for accessing virtually any asset class out there. With over 1,500 ETFs on the market, active traders and buy-and-hold investors are able to tap into an array of strategies, some of which have delivered truly impressive gains thus far in 2013.

In the spirit of giving thanks today, below we take a look at seven ETF types that have racked up stellar returns year-to-date (as of 11/26/2013) for shareholders; for comparison, the broad U.S. market, as represented by the SPDR S&P 500 (SPY, A), has returned just over 28% YTD:

1. Solar Energy

Following their epic crash spanning 2008-2009, solar stocks have rebounded with great vigor in 2013. Improvements in solar technology, largely driven by lower production costs for panels, has been one of the key price drivers behind this asset class. Prospects for improving global growth have also helped to re-inspire investments in the alternative energy sector. The Solar ETF (TAN, C+) is up an impressive 147% YTD, trailed closely by its competitor the Market Vectors Solar Energy ETF (KWT, C+), which is up 106%.  

2. Clean Energy

Green energy investing has made a huge comeback this year as evidenced by the fact that two of the best performing ETF types YTD fall under this sector. While there is inevitably some overlap between TAN’s portfolio and the stocks included in the NASDAQ Clean Edge Green Energy Index Fund (QCLN, B+), which is the best performing fund from this category with an 84% return YTD, these two ETFs offer exposure to inherently different strategies. The clean energy funds offer a broad-based approach when it comes to accessing the “green energy” trend, covering everything from solar to wind to biofuels; however, for those that are convinced that solar technologies will lead this revolution, Solar ETFs are the better fit [see our Head-To-Head Comparison Tool].

3. Inverse Volatility

What better way to profit during a bull market than to bet on the decline of uncertainty. Inverse Volatility ETFs have managed to return stellar double-digit gains YTD thanks to improving investor sentiment; growing optimism has in turn led to a decline in volatility as more market participants have started to favorably position themselves in anticipation of economic growth picking up steam. Investors can easily gain exposure to volatility as an asset class thanks to the innovation of exchange-traded funds. The most popular options in this space are the ProShares Short VIX Short-Term Futures ETF (SVXY, A-) and the VelocityShares Daily Inverse Short-Term ETN (XIV, B+), which have returned 99% and 100% year-to-date, respectively [see also Cheapskate Hedge Fund ETFdb Portfolio].  

4. Biotechnology

After quietly inching higher in 2012, Biotech ETFs gathered enough steam to push much higher this year, aided by fundamental catalysts in the space. Bustling M&A activity in this corner of the market, including Amgen’s (AMGN) buyout of competitor Onyx, has played a big role in reminding investors of this sector’s lucrative growth potential. Excluding leveraged options, the leader in this space has been the PowerShares Dynamic Biotech & Genome ETF (PBE, C+), which has raked in a gain of 64% thus far on the year.

5. Broker-Dealers

With the bull market taking full root in 2013, it shouldn’t come as a big surprise that the institutions responsible for facilitating transactions across financial markets have been some of the biggest beneficiaries. Currently, only the iShares U.S. Broker-Dealers ETF (IAI, B-) exclusively targets this corner of the Financial Sector and it has delivered gains upwards of 59% year-to-date. Some of IAI’s top holdings include Charles Schwab (SCHW), CME Group (CME), NYSE Euronext NYX, and TD Ameritrade (AMTD).

6. Pharmaceuticals

Partially bolstered by the euphoria stemming from the biotech industry, pharmaceutical stocks have enjoyed a great run this year thanks to a number of compelling long-term fundamentals. An aging population at home and growing demand from developing markets are two of the biggest drivers behind this sector that are expected to persist over the coming years. The best performing fund from this corner of the Healthcare Sector has been the SPDR S&P Pharmaceuticals ETF (XPH, B+), which has gained 57% year-to-date [see Baby Boomers ETFdb Portfolio].

7. Internet

Technology stocks, and more specifically Internet companies, have played a large role in fueling this year’s rally. Big data, cloud computing, social networks, and an ever-expanding mobile market are just a few of the key trends bolstering tech stocks higher. Industry leaders Amazon.com (AMZN), Priceline.com (PCLN), Facebook (FB), and Google (GOOG) are all included in the PowerShares Nasdaq Internet Portfolio (PNQI, B-), which has managed to return over 53% year-to-date.

Follow me on Twitter @SBojinov

[For more ETF analysis, make sure to sign up for our free ETF newsletter]

Disclosure: No positions at time of writing.