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10 Best ETFs in Times of Extreme Volatility

TheStreet.com Ratings' top 10 rated ETFs steer investors toward the relative safety of the bond market and favor inverse stock funds.

For more coverage from TheStreet.com Ratings team, check out TheStreet.com Ratings section.

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) - Get iShares 3-7 Year Treasury Bond ETF Report

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) - Get iShares 1-3 Year Treasury Bond ETF Report

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) - Get iShares 10-20 Year Treasury Bond ETF Report

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) - Get iShares MBS ETF Report

made the list with a 6.55% return, holding the same types of mortgage-backed securities from

Fannie Mae

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and

Freddie Mac

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that have been at the center of the financial storm.

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6.

iShares Lehman Short Treasury Bond Fund

(SHV) - Get iShares Short Treasury Bond ETF Report

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.

7. The

Short S&P SmallCap 600 ProShares

(SBB) - Get ProShares Short SmallCap600 Report

TheStreet Recommends

is inversely related to the S&P Small Cap 600 Index. Topping all other ETFs on the list, this fund pulled in 13.21% as it bet against companies like

Waste Connections

(WCN) - Get Waste Connections, Inc. Report

,

Piedmont Natural Gas

(PNY)

and

Flowers Foods

(FLO) - Get Flowers Foods, Inc. Report

.

8. While it is not possible for an ETF to own every single U.S. bond in existence, the

Vanguard Total Bond Market ETF

(BND) - Get Vanguard Total Bond Market ETF Report

ended the period up 4.57% tracking the Lehman Brothers Aggregate Bond Index. It's modeled to approximate the performance of a wide variety of U.S. fixed-income securities.

9. The second inverse, or short, stock ETF to make the list is the

Short Russell2000 ProShares

(RWM) - Get ProShares Short Russell2000 Report

. It appreciated 12.43% as the 1,960 members of the Russell 2000 Index fell. The aggregate price-to-earnings ratio of this index is currently negative as the accumulated losses from these companies outweigh the earnings. Some of the higher-priced stocks in the index are

Seaboard Corp

(SEB) - Get Seaboard Corporation Report

,

Alexander's

(ALX) - Get Alexander's, Inc. Report

,

United Therapeutics

(UTHR) - Get United Therapeutics Corporation Report

and

Deckers Outdoor

(DECK) - Get Deckers Outdoor Corporation Report

.

10. Lastly,

Vanguard Short Term Bond ETF

(BSV) - Get Vanguard Short-Term Bond ETF Report

inched up 5.41% on investments tracking the Lehman Brothers 1-5 Year Government/Credit Index of government, U.S. corporate and investment grade international debt with maturities of five years of less.

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For more information, check out an

explanation of our ratings

.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.