ETFs That Have Fallen and Can't Get Up

It was an apocalyptic year for stocks, with an avalanche of selling burying exchange traded funds with long positions in equities. By measuring the maximum drawdown for each fund in 2008, you can see which dug the smallest and largest holes for themselves.

A drawdown is the biggest decline from peak to trough over a particular time frame. This reveals the largest loss an unleveraged investor may have suffered buying and holding an investment over the past 12 months.

Drawdown calculations provide a method for comparing the relative risk of a fund compared with its peers. The bigger the absolute value of the greatest decline suffered by a security, the riskier it is deemed to be.

The bottom line is that if it fell that much once, it could do it again.

The PowerShares QQQ(QQQQ Quote), which tracks the Nasdaq-100 Index, plunged as much as 49.4% in its worst period from early June to mid-November. The Dow Jones Industrial Average's Diamonds Trust(DIA Quote) had a drawdown of minus 41.1% and the SPDR Trust(SPY Quote) of the S&P 500 Index was at minus 46.7%.

From their lows, the Nasdaq-100, Dow Industrials and S&P 500 would have to rally back 97.5%, 69.6% and 87.6% just to get back to breakeven.

These market proxies represent a mid-point between exchange traded funds that took serious damage and those cut down to their ankles.

Three of the five ETFs with the smallest drawdowns target the consumer staples sector of personal care products, drugs, beverages, food and tobacco, with companies like Procter & Gamble(PG Quote), Wal-Mart(WMT Quote), Philip Morris(PM Quote) and Coca-Cola(KO Quote).