By Christian Magoon
CEO and Founder, Magoon Capital
As 2012 begins to come to a close, many investors are interested in what investments have succeeded and failed this year. From past experience I've found that investors generally fall into two camps when examining winners and losers. The larger camp focuses on what's been working in the markets. They either want to capitalize on recent momentum or are simply drawn to glittering return numbers. Many in this camp believe the current winning streak will continue. The smaller camp focuses on what hasn't been working lately in order to find bargains. They believe that some of today's losers may become tomorrow's winners. This is because market losers are often oversold due to emotion. Whatever camp you may find yourself in, there are ETFs that present unique opportunities. Here's a look at several extreme ETF winner and losers in 2012. Note that this list excludes leveraged and inverse ETFs as well as ETNs.
There are several ETFs that have gains of 50% or more this year. The most dominant winner in 2012 have been ETFs related to construction in the United States. In fact, the top-two performing ETFs reside in this neighborhood. The iShares Dow Jones U.S. Construction ETF (ITB) has gained a staggering 73% year to date. Trailing well behind ITB is the SPDR S&P Homebuilders ETF (XHB) with a 53% return in 2012. These closely related areas were crushed during the housing crisis (former members of "The Losers" group below) and have rebounded significantly. Here's a NASDAQ interactive performance comparison chart showing the SPDR S&P 500 ETF (SPY) versus ITB and XHB over the last year.
Besides construction related ETFs, there have been 50% returns produced from two other ETFs. They both happen to be emerging market ETFs that most investors may not even be aware of. The Market Vectors Egypt ETF (EGPT) has gained 51% in 2012 after bouncing back from a chaotic period of civil and political unrest and the iShares MSCI Turkey Investable Market ETF (TUR) has gained 50% on a growing economy and a stronger currency. Both countries have outperformed the more well known emerging market heavyweights of Brazil, Russia, India and China this year. Will the momentum continue for these four 50% plus gainers?
It takes patience and research to find opportunities in the worst-performing market segments represented by ETFs. However, as evidenced by the winning construction related ETFs, there are often bargains to be found when areas of the market fall too far out of favor. In 2012, the bookends to construction winners are solar energy losers. The two worst performing ETFs reside in this troubled industry albeit with promising technology. The Market Vectors Solar Energy ETF (KWT) leads the losers with a decline of 44% year to date. Behind it is the the other solar ETF, the Guggenheim Solar ETF (TAN), which has plummeted 40%. Both these ETFs have suffered as solar technology costs have been trumped by significantly lower oil and gas prices. In addition, robust Chinese government subsidies for Chinese solar energy have caused pricing power to fall dramatically. Here's a one year performance comparison of the solar energy ETFs to the S&P 500 ETF (SPY) and the Energy Select SPDR ETF (XLE). This chart was created using the NASDAQ interactive chart feature.
After solar energy ETFs, the next biggest decliners are found in the commodity space. The First Trust ISE Global Platinum ETF (PLTM) and the Teucrium Sugar ETF (CANE) are both down 23%, a less severe drop than solar ETFs. Note that PLTM owns stocks doing business in the global platinum industry whereas CANE owns sugar based futures contracts. Both commodity ETFs have experienced declines due to supply and demand challenges in the specific underlying commodity markets. So will solar energy and two other commodity ETFs continue their slide or could a diamond in the rough exist in this group?
ETFs offer investors a transparent and liquid vehicle to realize their market opinions in a cost efficient way. So whether you are a momentum player trying to hop on the coat tails of a leading performer or a contrarian seeking oversold bargains, the ETF product set has plenty of opportunities to review.