Best ETFs in March 2012 – Finance and Volatility

Let’s breakdown the best and worst performing exchange-traded funds in March 2012, while highlighting the best three leveraged and unleveraged funds.

Top Leveraged ETFs in March 2012

1. VelocityShares Daily Inverse VIX Short Term ETN (XIV) 36.94% – This inverse fund tracking double the daily change in the short-term VIX index ran away from the pack in March. Playing the VIX – the volatility index – is a popular bet this year as the markets trudge higher. However, the VIX continues to move lower, mostly due to on-again off-again positions from retail investors in one of the most illiquid futures contracts. ETFs seeking to provide accurate tracking to investors are now the largest players in the VIX future market.
2. Direxion Daily Financial Bull 3X Shares (FAS) 19.3% – This triple-leveraged fund tracking the Russell 100 Financial Services Index finds no reason to take a breather. Healthy bank balance sheets, excellent stress test results, and near daily advances in share prices for top financial firms through March allowed this fund to ride the wave to the top. Year-to-date, the FAS fund rewarded investors with a 68% return. Investors should be sure not to forget that all leveraged funds eventually go to zero – this fund lost 52.66% of its value in 2011.
3. Direxion Daily Tech Bull 3x Shs (TYH) 15.77% – This triple-leveraged fund tracks three times the daily move in the Russell 1000 Technology Index. Good earnings, free cash flow growth, and awesome performance by a key holding – Apple (AAPL), which appears to be immune even to a barrage of ridiculous criticism from the mainstream media – makes this market-cap weighted fund the third best performer in March. Again, much like the FAS fund in the number 2 position, this fund benefitted from consistent days of advances in tech stocks, which makes for lucky compounding as leverage is reset daily.

Unleveraged, Straight ETFs

1. iShares Dow Jones US Financial Services (IYG) 8.5% – Financial services are unbelievably hot on Wall Street. Tracking the biggest financial services companies involved any financial sub-industry, from equities to real estate makes this fund a great proxy for broader market exposure. When the markets are up, financial services companies naturally benefit from a rising tide – and better fee-based revenues.  With the economy improving, most firms doing OK on the recent Stress Tests and more volume coming from products like 401(k) annuities, refinancing activity and limited exposure to Europe, US Financials were oversold since the crisis and are now returning to full value.
2. SPDR KBW Bank (KBE) 7.5% – The KBE fund tracks the S&P Banks Select Industry Index, an index comprised of companies involved primarily in traditional banking services. Such companies are typically overweight traditional assets like car loans and home mortgages and lighter on equities or financial management services. The fund’s excellent performance in March is not at all surprising, given that recent economic indicators point to an improving economy and improving personal balance sheets.
3. SPDR KBW Regional Banking (KRE) 5.88% – For those who want exposure to the smaller banking stocks, the KRE ETF is a perfect choice. The fund tracks the S&P Regional Banks Select Industry Index, which holds many of the same funds as KBE’s benchmark, with most major banks excluded from the list. The fund holds positions in smaller banks, which have regional exposure and typically smaller balance sheets. The four largest stocks in this fund are mostly “unknown” – Synovus Financial Corp (SNV), Popular Inc (BPOP), Regions Financial Corporation (RF), and SunTrust Banks Inc (STI) – which should be proof enough this fund is highly concentrated into the plain-vanilla and mostly-local S&L banking institution.

Disclosure: the author holds no positions in any of the funds or stocks listed above.