Hottest ETFs Week Ended 11-Oct-2009

Each week, I like to publish the past week’s hottest ETFs to share some new trends and niche ETFs out there and give investors some new investing/diversification ideas. Last week, emerging markets, commodities and financials had quite a showing. I’ve made sure to include both some leveraged ETFs with their outsized gains as well as non-leveraged traditional sector ETFs.

Direxion Daily Energy Bull 3X Shares (ERX) - Up 24% - This ETF seeks to return 300% of the daily performance of the Russell 1000 Energy Index. With oil prices drifting back up again this week, the underlying energy companies really took off in comparison to a nominal gain in oil for the week. Investors are possibly betting that ERX could serve as a strong leveraged hedge for another runup in oil prices. If the upcoming hurricane season is not as benign as anticipated or if the global economy continues to pick up steam, an onward march for oil is certainly feasible. However, given the longer term loss in value in leveraged ETFs I always start this section off by highlighting what can happen to these over time - see “How to Lose 90% in an ETF Fast“.

Ultra Silver ProShares (AGQ) - Up 20% - This is a 2X leveraged ETF tracking the return of silver. This one’s been a regular on the hot list several times recently, as silver is more volatile than gold, hence, the runups have been even more spectacular. You’ll want to check out how silver and other precious metal ETFs are doing in comparison to gold - much better! It’s primarily a weak dollar/global recovery play, but gold tends to get all the press. If you’re only investing in the gold weak dollar play, silver and other ETFs may actually do much better for you.

Direxion Daily Financial Bull 3X Shares (FAS) - 20% - You can always count on having either FAS (triple long) or FAZ (triple short) Financials on the list given the volatility in the Financial sector and the constant news cycle regarding either more government oversight, more leadership turnover, or better than expected year over year comparables given the horrendous base from last year. Note that this week, several Financials will be reporting earnings, so expect massive volatility in FAS/FAZ this week.

Top Non-Leveraged ETFs

Market Vectors Russia ETF (RSX) - Up 13% - Russia been on a tear, up 13% last week and now stands at 131% YTD. Viewed as on the verge of default in early 2009, with oil stabilized around $70 per barrel along with the global economy recovering, markets have viewed Russia’s near-collapse in equities as overdone and investors have been buying back in in force. The ruble has recovered against the US dollar indicating the worst may be over from a devaluation standpoint. The peak trading value for RSX was close to 60 in 2008 so a double from here is at least plausible if the global economy gets back on its feet.

Market Vectors Gold Miners ETF (GDX) - Up 13% - This ETF was an interesting study in divergence from the underlying commodity. Over long periods of time, GDX roughly tracks the returns of gold, with the ETF GLD as a proxy. However, last week, GDX returned 13% vs. a return of 4.5% for GLD. In fact, YTD 2009, GDX has actually outperformed GLD by a margin of 42% vs. 19%.

Claymore/Delta Global Shipping (SEA) - Up 12% - With a steady runup last week totalling 12%, this shipping ETF is now up 42% over the prior 6 month period as the cost of shipping materials globally starts to pick up as the credit freeze thaws and global conditions improve. Shippers are notorious for throwing off high yields given the nature of their business. As such, the yield on SEA currently stands at 4%.

Other trends that are heating up include foreign currency ETFs given the weakness in the US Dollar, as well as seeing Shorting Treasuries coming back into style. While they didn’t make the list that week, these ETFs are moving upward as well, are not strongly correlated with stocks (slightly negative in some cases) and may do well in a flat or falling equities market.

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