The top ETFs of 2010 hail from several different asset classes and strategies. Since leveraged ETFs tend to benefit tremendously from sustained trends but make for poor long-term investments in volatile markets, I’ve included both conventional non-leveraged ETFs as well as leveraged ETFs. As of December 30, 2010, here are the best performing ETFs of the year in both categories:
Top ETFs of 2010 non-Leveraged:
Ticker YTD Name
| BHH | 107.87 | % | B2B Internet HOLDRs | ||||
| BAL | 97.06 | % | iPath DJ-UBS Cotton TR Sub-Idx ETN | ||||
| SLV | 78.55 | % | iShares Silver Trust | ||||
| SIVR | 78.54 | % | ETFS Physical Silver Shares | ||||
| DBS | 77.77 | % | PowerShares DB Silver | ||||
| USV | 77.5 | % | UBS E-TRACS CMCI Silver TR ETN | ||||
| JO | 65.63 | % | iPath DJ-UBS Coffee TR Sub-Idx ETN | ||||
| JJS | 62.99 | % | iPath DJ-UBS Softs TR Sub-Idx ETN | ||||
| JJT | 60.4 | % | iPath DJ-UBS Tin TR Sub-Idx ETN | ||||
| THD | 53.56 | % | iShares MSCI Thailand Invest Mkt Index | ||||
| IIH | 46.36 | % | Internet Infrastructure HOLDRs | ||||
| PXQ | 46.35 | % | PowerShares Dynamic Networking | ||||
| GXG | 44.63 | % | Global X/InterBolsa FTSE Colombia 20 ETF | ||||
| ECH | 41.61 | % | iShares MSCI Chile Investable Mkt Idx | ||||
| JJP | 40.05 | % | iPath DJ-UBS Prec Metals TR Sub-Idx ETN | ||||
Top ETFs of 2010 Leveraged:
Ticker YTD Name
| AGQ | 171.24 | % | ProShares Ultra Silver |
| TNA | 73.49 | % | Direxion Daily Small Cap Bull 3X Shares |
| MWJ | 67.05 | % | Direxion Daily Mid Cap Bull 3X Shares |
| DRN | 61.31 | % | Direxion Daily Real Estate Bull 3X Shrs |
| DGP | 59.04 | % | PowerShares DB Gold Double Long ETN |
| UKK | 58.01 | % | ProShares Ultra Russell2000 Growth |
| EPU | 56.96 | % | iShares MSCI All Peru Capped Index |
| UGL | 54.99 | % | ProShares Ultra Gold |
| UYM | 54.75 | % | ProShares Ultra Basic Materials |
| MVV | 53 | % | ProShares Ultra MidCap400 |
| UWM | 52.85 | % | ProShares Ultra Russell2000 |
| SAA | 52.8 | % | ProShares Ultra SmallCap600 |
| UKW | 51.45 | % | ProShares Ultra Russell MidCap Growth |
| UXI | 49.58 | % | ProShares Ultra Industrials |
| URE | 47.15 | % | ProShares Ultra Real Estate |
Analysis
- Metals – 2010 was the year of commodities, inflation fears, recapitalization of banks, and political volatility. Perusing the top ETFs of 2010 in the non-leveraged category, one can’t help but notice the preponderance of precious metals ETFs. As I’d highlighted months ago, even though gold gets all the headlines, there are several ETFs beating gold that are actually more levered to gold moves than bullion itself. Silver, otherwise known as the poor man’s gold, beat out gold by a 2:1 margin in 2010 and is likely to continue to appreciate at a leveraged pace in an up market, but fall just as hard in the event of a correction. Just beware gold tax rates aren’t the same across all ETFs; some are treated as collectibles vs. capital gains so be sure to understand tax structures of various ETFs before proceeding.
- Bonds – Toward the end of the year, after markets were underwhelmed with the QE2 announcement in November, bonds started selling off en masse, pushing mortgage rates up. To further exacerbate the concerns over US fiscal deficits, in December, Obama announced the framework for a massive $900 Billion tax agreement, which was chock full of extensions and tax credits, which practically amounted to a massive stimulus bill that he couldn’t have gotten through otherwise. Bonds have since sold off in such fashion that it’s highly unlikely we’ll see rates back at the lows we saw in the summer during this business cycle, if in our lifetime at all. Many have been touting the short Treasury Bond strategy as a trade of the century as this bubble unwinds. Who knows, once the markets are through routing Europe, will the US be next? Investors hanging on to municipal debt are also questioning why muni bonds are falling and it’s practically a binary trade in many respects. Let’s face it, hundreds of municipalities in the US are completely insolvent going out a few years. The binary topic is whether or not they will be bailed out or allowed to fail. Meredith Whitney tends to think we’ll see failures within the year; many others view the bailouts as more likely. It’s tough to say, but the selloff in muni bond ETFs has begun nonetheless.
- Internet Business – We saw surges in many internet related companies for a multitude of reasons. Not only are consumers and ad dollars increasingly geared toward the web as a medium of exchange, but also from a corporate standpoint, we’ve seen productivity skyrocket without the typical shift to a resurgence in hiring. What has happened here is that as companies leaned out their payrolls through attrition and layoffs, technology filled the shoes of those workers thus increasing productivity. But this time around, companies have continued to hold off on rehiring even in the face of a return of sales and prior operating levels by relying more heavily on technology. Many of these advances are due in large part to internet and tech companies comprising the top ETFs like BHH and IIH.
- Soft Commodities – With the irony of another year of very low CPI, no increase in COLA and many companies holding their wages steady as a result, things don’t cost what they used to (see major prices shifts in 2010 for common items). Soft commodities are spiking to the tune of 60% year over year, driving up the cost of clothing, food, and other expenditures that hit lower wage earners especially hard. While many rejoiced the inclusion of a payroll tax holiday in the 2011 tax deal, many in this cohort would have been better off if the making work pay credit had been extended instead of the payroll tax deduction given how each program was structured. Not to wax poetic on social justice, but it’s worth noting which socioeconomic classes are impacted in what manner by these changes. The high end seems to be doing well in this recovery given surges in luxury retailers and a surging equities market making high end investors feel more wealthy again. However, lower income cohorts are hit especially hard by inflation, so expect to see more rhetoric and legislation attempts in 2011 and 2012 geared toward this demographic which may influence equity and commodity ETFs.
So, those were the major themes in 2010 ETF returns, with leveraged ETF asset classes very much mirroring the top non-leveraged brethren. Just bear in mind that it’s a rare year where leveraged ETFs are actually positive at all on the year; they’re often money losers on both the long and the inverse end since all leveraged ETFs go to zero given enough time from daily reset value decay.
Disclosure: Long Colombia (GXG), hedged position in Silver (AGQ, SLV), no other positions.
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