The Best ETFs of 2008

Semis on Shaky Ground

Running neck and neck with SDK is the UltraShort Semiconductor ProShares Fund (SSG Quote), which is up 96.0% in 2008. It is worth noting that Intel (INTC Quote) accounts for nearly 40% of this ETF's weight. With shares of Intel retreating 39.7% in 2008, this fund was a big winner.

Intel wasn't the only chipmaker that experienced adversity in 2008 though. It was tough sledding for most of the industry. "Many semiconductor companies had over 50% of their sales coming from emerging market countries," said Eric Aanes, president of Titus Wealth Management. "The economic slowdown in the emerging markets enhanced the sell-off in these stocks."

Aanes believes that chip stocks are positioning for a recovery. "Many stocks in the sector are trading at 11 to 15 earnings, which is historically low," he said. "Tight cost controls will preserve profitability for top-tier companies. This sector will be one of the early sectors to lead us out of a defensive mode."

A Flight to Safety, Treasuries

In terms of non-inverse, non-leveraged ETFs, the top two performers in 2008 have been the Vanguard Extended Duration Treasury ETF (EDV Quote) and the iShares Barclays 20+ Year Treasury Bond Fund (TLT Quote). Year to date, these ETFs have experienced respective returns of 55.1% and 33.8%.

Kevin Mahn, portfolio manager for the SmartGrowth Mutual Funds notes that these ETFs have benefited from investors becoming more risk averse. Mahn's SmartGrowth Lipper Optimal Conservative Index Fund (LPCAX Quote), which is a fund of ETFs, is down only 7.5% this year. "At the end of Q3, TLT was only up 2.0%," he said. "The bulk of its gains came in November. I think this trend can be attributed to a flight to quality."

Mahn isn't sold on the notion that that these two ETFs will be able to maintain such strong momentum over the course of 2009. "Money that is on the sidelines in these funds right now will likely be moving into equities in 2009," he said.