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Which One of This Year's Hottest ETFs Could Climb Even Higher in 2013?
11/1/2012 10:00:00 AM
By: David Sterman
With the majormarket averages up about 10-15% thus far in 2012, it goes without saying that many exchange-traded funds ( ETFs ) have risen by a similar amount. But a handful of ETFs have had a banner year, rising at a much faster clip. The biggest gainers: ETFs that focus on home builders, biotechnology and financial services stocks.
The Year's Top-Performing Equity ETFs
The key question: Are these moves part of a multi-year uptrend or are these funds ripe for a pullback?
The same logic applies to other banks stocks as well. By the
time theeconomy is truly healthy -- perhaps in a few years -- then
these banking stocks may trade closer to 1.5 times book value
(which is the historical industry average). This only means these
rallying ETFs still have solid upside.
This fund, which was launched in late 2006, had an inauspicious debut, dropping roughly 80% from inception to early 2009. This was a reflection of the deep carnage that a weak economy can inflict on the valuations of young, unproven companies. But thisETF looks better positioned in the context of an improving economy, as small private companies tend to have an easier time lining up needed financing and are less likely to hit a big cash crunch.
This ETF has posted solid gains in 2012, and would likely move nicely higher if the economy can build a head of steam into mid-decade. As a minor turn-off, this ETF carries a mutual-fund likeexpense ratio of 2.37%, as its managers must actively manage the portfolio. So this is better-suited as a long-term investment than as a short-term trading vehicle.
The foreign ETFs
And it should come as no surprise that Turkey and Colombia remain top performers, thanks to their solid regional positioning and expanding middle classes. These two countries are among the CIVETS nations, which I first profiled here .
Risks to Consider: As they say, past performance is noguarantee of future performance, especially for the hottest ETFs such as the ones that focus on home builders.
Action to Take --> These ETFs are benefiting from powerful current trends, so you need to assess how those trends will likely play out in 2013 and 2014 to see how these surging ETFs are could fare. Only a handful look set to lead the pack again in 2013.
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David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.