ETFs in 2008 - What Lessons Can We Learn?

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 |  Includes: DIA, EEM, EZA, GDX, GEX, ILF, IWV, IYE, IYF, MOO, PGJ, QQQ, SPY
by: Everyday Finance

What a difference a year makes! Earlier this year, I highlighted the 2007 returns for various stock markets, including emerging markets, as well as sector ETFs. Some of these obscure ETFs spanned the realm of imaginative sectors from the "Emerging Cancer" ETF to hot button items like "Alternative Energy" ETFs. It is therefore instructive to review how some of these hot ETFs performed year to date in 2008 and what 2009 has in store.

2007 vs. (2008) US Returns (major indices):

S&P 500 (NYSEARCA:SPY) 5% (-44%)

Powershares QQQ Trust (QQQQ) 18% (-44%)

iShares Russell 3000 (NYSEARCA:IWV) 4% (-41%)

Dow Diamonds (NYSEARCA:DIA) 9% (-35%)

2007 vs. (2008) (select) International Markets:

iShares Latin America 40 (NYSEARCA:ILF) 40% (-54%)

iShares Emerging Markets (NYSEARCA:EEM) 33% (-55%)

iShares South Africa (NYSEARCA:EZA) 22% (-49%)

Powershares China (NYSEARCA:PGJ) 57% (-60%)

Remember all that talk about "decoupling" and how owning international (especially the fast-growing emerging markets) ETFs would provide you with a low correlation asset? Out the window. Well, OK, they didn't perform the same, they did much worse than the US indices. Now, for a few select imaginative sector ETFs...

2007 vs. (2008) (select) Sector ETFs:

*HealthShares [HS] Cancer (HHK) 15% (-29%)

*HS Emerging Cancer [HHJ] -35% !!Closed!!

*HS Diagnostics (HHD) 26% (-39%)

* Note, these HealthShares are only as of March 2007

iShares Energy (NYSEARCA:IYE) 42% (-40%)

iShares Financial (NYSEARCA:IYF) -21% (-55%)

Market Vectors Gold Miners (NYSEARCA:GDX) 21% (48%)

**Market Vectors Global Alt Energy (NYSEARCA:GEX) 47% (-67%)

**since launch in May 2007

***Market Vectors Agribusiness (NYSEARCA:MOO) 40% (-59%)

***Since launch in Sep 2007

The takeaway from the selected sector ETF review is that for investors that jumped into the hot sectors of 2007 like Agristocks and Alternative Energy, were hit especially hard. This is further evidence of the herding that occurs during bull markets and the subsequent fallout for those left holding the remnants.

For a full snapshot of all the ETFs reviewed for 2007, visit this article.

Disclosure: The author trades SPY, QQQQ, UYG and engages in pairs/hedged positions with combinations of each.