"Ultra-short" set the style in 2008 in top-performing exchange-traded funds.

Since ETFs offer lots of "inverse" funds, which rise when indices fall and vice versa, those topped the list during the dismal year that just ended. Inverse-leveraged funds, which use borrowed money to amplify gains, did even better.

Of 620 ETFs tracked by TheStreet.com Ratings for which complete 2008 returns are available, 71 managed to avoid the maelstrom that brought down many popular equity indices by 30% or more. Most of the winners were inverse funds.

An accompanying table lists top-performers in broad classifications of ETFs.

Short funds were tops among inverse and leveraged offerings, particularly technology and growth funds. Anyone tempted to join that party should look at the column of December returns. A modest upturn in the market can hit holders with depressingly quick double-digit losses.

As the Federal Reserve lowered interest rates, the few ETFs that focus on long-term Treasury bonds easily outdistanced other investments on the "long" side. The three top-performing bond ETFs in the table achieved impressive returns over one month, three months and one year.

Among non-leveraged equity funds, health and biotechnology funds dominated, confounding some experts. The top three in that area moved up smartly in December, although only one managed a positive total return for the year.

Although it lost ground during the final quarter of 2008, HOLDRs Biotech ( BBH) finished the year with a net gain of 10.2%. Its top stocks include Genentech ( DNA), Amgen ( AMGN), Gilead Sciences ( GILD) and Biogen IDEC ( BIIB).

A more traditional health/biotech fund, the SPDR S&P Pharmaceuticals ETF ( XPH) is invested in cash-rich "big-pharma" firms that some industry analysts say are gearing up to acquire companies, such as those that kept BBH above water during the year.

XPH's biggest holdings include Bristol-Myers Squibb ( BMY), Abbott Labs ( ABT), Johnson & Johnson ( JNJ) and Pfizer ( PFE).

Finally, the nearby table also includes the top three funds in a popular area of ETF investing: currency and commodity funds. Even though the U.S. dollar regained lost ground vis-à-vis the euro and U.K. pound, investors who speculated on the strength of the Swiss franc and the Japanese yen by buying the currency ETFs in the table achieved profits in 2008.

2008's TOP-PERFORMING ETFs
NAME, TICKER & TheStreet.com RATINGS GRADE
1-MO. TOTAL RET'N (%)
3-MO. TOTAL RET'N (%)
CAL. 2008 TOTAL RET'N (%)
MARKET CAP ($MIL.)
TOTAL EXPENSE RATIO (%)
LEVERAGED & INVERSE ETFs
ProShares Ultra Short Semiconductor (SSG) A-
-21.57
23.59
107.69
67.7
0.95
ProShares Ultra Short Technology (REW) C
-9.95
30.66
94.45
87.6
0.95
ProShares Ult Sht Rus Mid Cp Growth (SDK) A+
-15.46
27.32
94.06
33.3
0.95
FIXED-INCOME ETFs
Vanguard Extended Duration Treasury (EDV) U
20.95
45.82
54.51
6.6
0.14
iShares Lehman 20+Yr Treasury Bond (TLT) A+
13.64
27.51
33.92
1,834.0
0.15
SPDR Lehman Long Term Treasury ETF (TLO) A-
8.95
18.53
23.91
12.1
0.14
NON-LEVERAGED EQUITY ETFs
HOLDRS Biotech (BBH) B-
7.57
-4.21
10.34
1,443.8
0.00
SPDR S&P Biotech ETF (XBI) D+
9.27
-10.82
-8.61
226.0
0.35
SPDR S&P Pharmaceuticals ETF (XPH) C+
8.56
-3.05
-8.99
8.4
0.35
CURRENCY & COMMODITY ETFs
iPath JPY/USD Exchange Rate ETN (JYN) B+
5.22
16.62
22.91
12.69
0.40
CurrencyShares Japanese Yen Trust (FXY) A-
5.53
17.26
22.87
751.81
0.40
CurrencyShares Swiss Franc Trust (FXF) B+
14.04
5.67
7.63
445.47
0.40
TheStreet.com Ratings & Bloomberg (Data as of 12/31/2008)
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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