Investors last month piled into "short" exchange-traded funds, which rise when equity markets fall, as some stocks took their worst beating in decades.

More surprising, however, was that they were attracted to leveraged ETFs, which exaggerate market moves.

Three of five newcomers to the accompanying list of September's popular ETFs, as measured by average daily dollar volume of turnover, were leveraged ProShares Ultra entries. Two of the three were of the ProShares Ultra Short variety, which moves opposite to respective benchmarks at accelerated velocities.

ProShares Ultra Short Real Estate ( SRS), the 30th most popular ETF in August, advanced to 20th, while ProShares Ultra Short Oil & Gas ( DUG) ascended from 21st to 19th on the list. The "long" ProShares Ultra S&P 500 ( SSO) gained nine positions to finish 16th.

The perils of leverage are apparent in SSO's drop of 19.6% in September, leaving its holders with a loss of 40% for the year.

Five of the more common ETFs from the August top-20 list, all members of the iShares family, failed to make the September list.

The once-trendy BRIC sector -- Brazil, Russia, India and China -- has been losing its luster, as witnessed by the absence of iShares FTSE/Xinhua China 25 ( FXI) and iShares MSCI Brazil ( EWZ) from the adjoining list. Both were among the 20 most popular ETFs in August. The loss from the August list of iShares MSCI EAFE ( MSFT) underscores the diminishing popularity of overseas investments.

Two of the worst-hit industries by the credit crunch lost representatives, as the iShares Dow Jones Real Estate ETF ( MSFT) and the iShares Dow Jones U.S. Financial U.S. Financial Sector ETF ( IYF) both failed to transition to the September roster.

Remaining at the top of the ETF popularity list was the SPDR S&P 500 ETF ( SPY), whose shares traded at an average rate of $26.6 billion per day in August. Its top holdings include blue chips Exxon Mobil ( XOM), General Electric ( GE), AT&T Inc. ( T) and Microsoft ( MSFT).

SPY tumbled 9.4% in September and remains 19.4% in negative territory for 2008.

The second most popular ETF in September was the PowerShares QQQ ( QQQQ), whose top holdings, in addition to Microsoft, include Apple Inc. ( AAPL), Qualcomm ( QCOM)QCOM and Google ( GOOG).

The previous month's list of the 20 most popular ETFs can be seen at Bruised Sectors Back in ETF Spotlight.

MOST POPULAR ETFs IN SEPTEMBER 2008
SEPT. 2008 RANK PRIOR MNTH RANK NAME, TICKER & TheStreet.com RATINGS GRADE SEPT. AVG. DAILY DOLLAR VOL. ($MIL) SEPT. TOTAL RET'N (%) YR.-TO-DATE TOTAL RET'N (%)
1 1 SPDR S&P 500 ETF (SPY) B- 45,780.36 -9.44 -19.43
2 3 PowerShares QQQ (QQQQ) C+ 10,438.41 -15.58 -23.87
3 2 iShares Russell 2000 (IWM) B- 6,890.29 -7.75 -9.75
4 5 Financial Select Sector SPDR (XLF) C- 6,084.28 -6.36 -29.52
5 4 ProShares Ultra Short Financials (SKF) C- 4,604.69 -1.88 14.97
6 7 DIAMONDS Trust (DIA) B 3,651.63 -5.87 -16.77
7 6 Energy Select Sector SPDR (XLE) B+ 3,220.65 -14.95 -19.54
8 12 ProShares Ultra Short S&P 500 (SDS) B 2,516.65 14.29 38.19
9 9 ProShares Ultra Short QQQ (QID) C 2,433.62 45.93 63.85
10 13 ProShares Ultra Financials (UYG) E+ 1,982.57 -22.37 -60.42
11 8 HOLDRS Oil Services (OIH) B- 1,947.57 -20.25 -21.11
12 17 ProShares Ultra QQQ (QLD) E+ 1,515.43 -36.80 -52.16
13 20 SPDR Mid Cap 400 (MDY) B- 1,451.01 -10.80 -14.29
14 22 iShares MSCI Emerging Markets (EEM) C+ 1,334.76 -14.68 -31.03
15 11 United States Oil Fund (USO) C+ 1,293.73 -11.69 8.25
16 25 ProShares Ultra S&P 500 (SSO) D- 1,292.38 -19.63 -40.05
17 10 streetTRACKS Gold Trust ETF (GLD) A 1,201.98 4.11 3.17
18 23 HOLDRS Retail (RTH) B+ 969.38 -5.81 -2.36
19 21 ProShares Ultra Short Oil & Gas (DUG) C+ 833.96 18.55 14.43
20 30 ProShares Ultra Short Real Estate (SRS) E- 772.84 -10.14 -29.82
Data as of 9/30/2008.
Source: TheStreet.com Ratings & Bloomberg

For an explanation of our ratings, click here.

Richard Widows is a senior financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

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