6 Hottest ETFs to Watch This Week

Again, markets advanced, taking some of the year’s hottest performing ETFs with them.  We saw the same theme of rebounding real estate and financials while China showed strength and in the non-leveraged segment, commodities rallied even in the face of a mildly stronger dollar index for the week.

For the week ended 4/11/2010, here’s a snapshot of some of the best performing ETFs of both the traditional and leveraged sort:

Non-Leveraged ETFs

BHH – B2B Internet HOLDRs – Up 10% – This internet ETF is tracking roughly in line with the S&P500 this year at 8% YTD vs. a very strong 2009 logging a return of 105%. In prior downturns, technology shares were usually the first to be crushed but this time around, tech outfits actually were actually holding cash and growing productivity.  With the strong rebound in 2009, now BHH is tracking a bit more like a mature company index more in line with the broad market. Should the economy experience a double dip, BHH may very well hold up better again given the productivity these companies can deliver and the continued shift toward the internet for all things commerce.

WCAT – Jefferies Wildcatters Exploration & Production – Up 7% – This relatively new ETF is a nice addition to the energy ETF universe in that it allows investors to participate in the the massive upside we see in small exploration outfits while allowing for diversification since massive finds are few and far between.  As outlined in this full review, an individual holding can jump over 50% in the single day when a major find is announced.  Since launch in January, WCAT is mildly outperforming the larger US Oil and Exploration ETF (IEO) 3% to 2% up.

GDXJ – Gold Miner Juniors ETF – Up 7% – In a similar vein, this ETF is comprised of smaller gold miners which also jump on major finds and are more leveraged to gold than their larger brethren.  YTD, GDXJ is almost doubling the return of (GLD), the gold bullion ETF at 10% vs 6% up.  Now, there are several ETFs with gold as a focus ranging from pure bullion to other gold miner ETFs.  It’s important to consider the makeup and also, the tax treatment of each ETF before jumping into any one particular fund.  See this full gold investing review for more details, but it’s important to ensure objectives are properly aligned with execution when investing in gold for either hedging, speculation or flat-out long term investment.

Leveraged ETFs

DRN – Direxion Daily Real Estate Bull 3X – Up 12% – After a crushing 2008 and 2009, Real Estate has returned with a vengeance.  Not necessarily due to fundamentals per se, but moreso because these companies survived and there is a future in real estate in the US again.  DRN is up 43% YTD vs. 7% for the S&P500.

CZM -Direxion Daily China Bull 3X – Up 10% – China has been a relatively strong performer, with CZM up 20% on the year.  However, there have been some articles highlighting the impending real estate collapse in China which is viewed as imminent due to speculation and stupidity, that believe it or not, would put the American shenanigans to shame.  This article from BusinessWeek this weekend summarizes it well, as have others.  It would be wise to tread carefully.

FAS – Direxion Daily Financial Bull 3X – Up 9% – Large Financials have continued to outperform the market in a big way.  With the Fed basically given them money at 0% which they selectively lend it out at 6% with leverage, it’s a money making machine.  FAS is now up 45% YTD and an astounding 717% since the March lows.  As long as this trend continues unabated, investors could expect more of the same, but there’s no guarantee that more loan losses don’t begin to appear and once the Fed starts raising rates, investors may well realize they’ve gotten ahead of themselves. Also, don’t discount the public ire over bailouts and bonuses while much of the rest of the country suffers 0% raises and layoffs.  There is political risk for the industry which is tough to quantify as well.

As always, I don’t recommend holding leveraged ETFs due to leveraged ETF decay which is all but inevitable.  Trade is one thing; investing is another.  They lose value over time and investors need to be fully cognizant of this going in.