10 Best ETFs in Times of Extreme Volatility

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The Chicago Board Options Exchange Volatility Index spiked to a new high on Thursday of 81.17. The rise in the VIX -- which serves as a benchmark measure of the implied volatility of S&P 500 options -- signals not just extreme bearishness but also massive uncertainty in the market.

In this environment, TheStreet.com Ratings' top 10 rated exchange-traded funds steer investors toward the relative safety of the bond market and favor inverse stock funds. All these funds are rated A+, and each of the returns cited below reflect the one-year period ending Sept. 30.

Top 10 Rated ETFs

1. The iShares Lehman 3-7 Year Treasury Bond Fund (IEI) returned 9.86% for the year. The fund tracks the Lehman Brothers 3-7 Year U.S. Treasury Index of intermediate term U.S. government bonds.

2. The iShares Lehman 1-3 Year Treasury Bond Fund (SHY) earned 6.40% for the one-year period linked to the corresponding Lehman 1-3 Year Treasury Index.

3. With higher risk and return, the iShares Lehman 10-20 Year Treasury Bond Fund (TLH) showed more volatility than the above funds in its tracking of the Lehman 10-20 Year Treasury Index but beat them both with a return of 10.29%.

4. SPDR Lehman Intermediate Term Treasury ETF (ITE) comes in fourth place, returning 8.24%. It gauges the movements of price and accumulated yield of the Lehman Intermediate US Treasury Index.

5. iShares Lehman MBS Fixed-Rate Bond Fund (MBB) made the list with a 6.55% return, holding the same types of mortgage-backed securities from Fannie Mae (FNM) and Freddie Mac (FRE) that have been at the center of the financial storm.

6. iShares Lehman Short Treasury Bond Fund (SHV) added just 3.41% over the same 12-month period but did so with very little volatility. This fund tracks the Lehman Brothers Short U.S. Treasury Index.