Looking at the best-performing exchange-traded funds by objective in August, we can see which groups stood out from the crowd. Some have run their course, but others may be up for another lap or two.
The first two bullish standouts are a bit counter-intuitive amid talk of a recession and housing crisis. However, the Retail HOLDRs Trust (RTH) bottomed in July and has extended gains into September. The U.S. government's stimulus checks helped bridge the gap to pre-holiday-season spending, supporting holdings of Wal-Mart (WMT), Home Depot (HD), and Target (TGT).
While the Retail HOLDRs are trading at a reasonable average of 16.3 times earnings, homebuilders like Beazer Homes USA (BZH) and Hovnanian< (HOV) have lost so much money, the aggregate P/E ratio of the SPDR S&P Homebuilders ETF< (XHB) can't be computed. Yet, the Homebuilders ETF did well in August and is building on its advance. Bargain-hunting investors calling a mid-July bottom to the stock, at its lowest point on record, are hoping most of the bad news in this sector has passed.
The last two bullish picks are inverse funds that performed well in August and are continuing their climb in September as the underlying indexes slide lower.
As the U.S. dollar rallies back to its highest level since September 2007, the price of dollar-denominated gold has dropped to the $740 an ounce level. And, the more the futures contracts tracked by the Deutsche Bank Liquid Commodity Optimum Yield Gold Index sink, the higher the 200% negatively leveraged PowerShares DB Double Short ETN (DZZ)spikes.
Another 200% negatively leveraged fund had a good month in August. The UltraShort MSCI Emerging Markets ProShares (EEV) gained 12.2% as the underlying MSCI Emerging Markets Index gave up 8.2%. If weakness expected in emerging markets materializes, the accelerated upward trend in this fund may have legs.
Finally, one fund on the list below that appears to be doing well really isn't and should be avoided. The Claymore/MAC Global Solar Energy Index ETF (TAN) found a solitary ray of sunshine in August, up 11.4%, before the rain clouds closed back in sending the shares to a record low in this five-month-old security. The fund's average P/E ratio of 109.5 is four times that of the S&P 500, implying there is more room to fall. If the presidential polls keep shifting toward the oil-drilling party, this fund may become an enticing short-sale candidate.
|Best Performing ETFs for Each Objective in August |
|Objective||Fund (Ticker) Rating||August 2008 Total Return|
|Corporate - High Yield||PowerShares High Yield Corp Bond (PHB) U||0.73%|
|Corporate - Investment Grade||iShares Lehman 1-3 Year Credit Bond (CSJ) A+||0.45%|
|Emerging Market Equity||ProShares UltSht MSCI Emg Mkts (EEV) U||12.23%|
|Emerging Market Income||iShares JPMorgan USD Emg Mkts (EMB) U||0.72%|
|Equity Income||SPDR S&P Homebuilders ETF (XHB) E||12.29%|
|General Bd - Investment Grade||Vanguard Long-Term Bond ETF (BLV) B||1.27%|
|General Mortgage||iShares Lehman MBS Fixed-Rate Bond (MBB) A+||1.04%|
|Global Equity||iShares S&P Global Cons Disc Idx (RXI) D||2.18%|
|Global Income||SPDR Lehman Intl Treasury Bond ETF (BWX) U||-4.28%|
|Government Bond||Vanguard Extended Duration Treasury (EDV) U||6.11%|
|Growth - Domestic||HOLDRS Retail (RTH) C-||8.64%|
|Growth & Income||First Trust Lrg Cap Core AlphaDEX (FEX) D||2.84%|
|Municipal||Market Vectors LB AMT Fr Lng Mun (MLN) U||2.27%|
|Non-US Equity||ProShares UltraShort MSCI EAFE (EFU) U||8.66%|
|Sector - Energy/Natural Res||Claymore/MAC Glb Solar Energy Inx (TAN) U||11.36%|
|Sector - Financial Services||KBW Regional Banking ETF (KRE) D-||6.05%|
|Sector - Health/Biotechnology||HealthShares Dermatology and Wound (HRW) E||12.42%|
|Sector - Precious Metals||PowerShares DB Gold Double Sht ETN (DZZ) U||19.11%|
|Sector - Utilities||PowerShares Dynamic Utilities (PUI) C||2.91%|
|Source: TheStreet.com Ratings|
As with any trading strategy, you can lose money. Remember to place stop-loss orders to help protect you from sudden moves against your positions.
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