Highlights (and lowlights) in 2011 Market Performance

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The year of 2011 was a historical year by many measures. We witnessed a deficit ceiling fiasco of epic proportions, continued meddling by the Federal Reserve in the U.S. Treasury market, and an unparalleled credit downgrade for the U.S. government.

Which investment categories were the winners and losers? And what can we expect in 2012? Let's take a look.

Bonds vs. Stocks

Despite record stock market volatility (NYSEArca: VXX), U.S. stocks (NYSEArca: SCHB) ended 2011 with flat performance. In contrast, the total U.S. bond market (NYSEArca: BND) beat stocks with around a 4% gain.

Big vs. Small

In the battle of big stocks versus small, neither group had a significant advantage over the other this year. The iShares S&P Small Cap 600 (NYSEArca: IJR) was ahead by 0.7% while the SPDR S&P 500 (NYSEArca: SPY) was up by 0.3%. And mid cap stocks inside the SPDR S&P MidCap 400 (NYSEArca: MDY) were down 2.6%.

Growth vs. Value

The perennial battle between growth and value investors ended 2011 with large cap growth stocks (NYSEArca: IWV) outperforming value stocks (NYSEArca: IVE). Growth stocks gained 3.1% while value stocks sank 2.5%.

Developed vs. Emerging Countries

Stocks from developed countries (NYSEArca: EFA) like Germany, Japan, and the United Kingdom struggled mightily, falling by 15% as a group. Europe's sovereign debt crisis continues to weigh not just on Europe, but its global trading partners.

Emerging market stocks (NYSEArca: VWO) recorded a 20% loss and did not decouple, as economic theorists projected. Stocks from Brazil, Russia, India, and China also known as the 'BRICs' (NYSEArca: BKF) were hit hard, declining by 25%. So much for India's anti-corruption fight and so much for China's soft landing.

Commodities Fall

As a group, commodities (NYSEArca: GCC) produced a disappointing 10% decline and did not record the sort of performance that commodity perma-bulls like Jim Rogers have been hoping for.

Likewise, stocks closely tied to commodity sectors like basic materials (NYSEArca: XLB) and mining stocks (NYSEArca: GDX) fell.

Precious Metals Lose Shine

Despite being trumpeted as a 'safe-haven' trade, precious metals were a mixed bag in 2011. Silver (NYSEArca: SLV) lost around 10% while gold (NYSEArca: IAU) gained just over 8%. Although it recorded its 11th year of consecutive gains, gold had a bumpy ride. During the final six months of the year, gold got roughed up, losing around 26%.

Platinum (NYSEArca: PPLT) and palladium (NYSEArca: PALL) were even worse performers this year, each dropping between 22 to 23%.

Currency Wars

In the currency market, the Australian dollar (NYSEArca: FXA) and the Japanese Yen (NYSEArca: FXY) gained between 3 to 4% respectively.

The euro (NYSEArca: FXE) ended the year with around a 2.75% loss compared to the U.S. dollar, which probably understates the true level of crisis eurozone members actually find themselves in.

REITs Gain

Many investment strategists have been calling for collapse in the commercial real estate market, but they'll have to wait a little longer for their forecasts to come true. This year U.S. REITs (NYSEArca: VNQ) defied the odds and climbed 5.2% in value. VNQ carries a yield around 2.80%. The Federal Reserve's deliberate suppression of interest rates has undoubtedly bought REITs some time.

Housing Funk Continues

Stocks closely tied to the housing market like homebuilders (NYSEArca: XHB) delivered flat performance this year, despite a late year surge. Home values across the country are still declining, but sales of previously occupied homes climbed 4% in November and the inventory of homes listed for sale is at the lowest levels since May 2005.

Many Americans have converted from being homeowners into renters and apartment REITs (NYSEArca: REZ) had a good year, posting a 16.27% gain. REZ carries a dividend yield near 3.70%.

Defense beats Offense

In U.S. industry sectors, the ever dull utilities (NYSEArca: XLU) gained 15.6% and easily outperformed sexier sectors like technology (NYSEArca: XLK) and energy stocks (NYSEArca: XLE). Other defensive oriented industry sectors, like consumer staples (NYSEArca: XLP) and healthcare stocks (NYSEArca: XLV) posted double digit gains between 10 to 11%. The worst performing S&P 500 sector for the year was financial stocks (NYSEArca: XLF), which cratered almost 20% in value.

Long-Term vs. Short-Term Treasuries

Record low Treasury yields translated into big gains for anyone with enough guts to buy and hold onto long-term U.S. Treasuries (NYSEArca: TLO). Long-dated Treasuries surged almost 30% and made doomsday predictions by gurus like PIMCO's Bill Gross look silly.

Treasuries with 1-3 year durations (NYSEArca: SHY) gained around 1.35% while 7-10 year durations (NYSEArca: IEF) were ahead by a handsome 15%.

What kind of year will 2012 turn out to be?

The January 2012 ETF Profit Strategy Newsletter highlights a short list of mega investment themes and the corresponding ETFs that match them.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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