Best Performing ETFs of 2008

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 |  Includes: EDV, FXY, JYN, PLW, QID, REW, SDK, SFK, SSG, TLO, TLT
by: Tom Lydon

2008 was the worst year for the stock market since 1931, and the worst year ever in the fifteen-year history of ETFs.

The Dow Jones Industrial Average ended 2008 with a two-day winning streak, but was still down for the year by 33.8%. It was the Dow’s worst annual performance since the Great Depression was in full force. The S&P 500 this year lost 38.5%, while the Nasdaq fell 40.5%.

This year, 19 of the top 20 ETFs for 2008 were of the short and ultra short variety. The other best-performing ETFs of the year were telling about the state of our economy, too, as they were focused on Treasuries and the Japanese yen.

The strongest ETF for 2008 was the ProShares UltraShort Semiconductor (NYSEARCA:SSG), which ended the year up 110.9%.

The other top short ETFs this year include:

  • ProShares UltraShort Technology (NYSEARCA:REW), 95.3%
  • ProShares UltraShort Russell MidCap Growth (NYSEARCA:SDK), 94.4%
  • ProShares UltraShort Russell 1000 Growth (NYSEARCA:SFK), 80.8%
  • ProShares UltraShort QQQ (NYSEARCA:QID), 77.3%

Leveraged and short ETFs should be played with ample knowledge by investors who understand their risks.

The other top area for ETFs were those focused on Treasury Bonds, which were a focal point for investors this year as they sought safety from the turbulent markets. In fact, the investor rush to these funds caused yields to hit lows not seen in decades. One auction of short-term Treasuries this month brought a 0% yield - and investors still snapped them up at an unprecedented pace.

The top-performing Treasury ETF was the Vanguard Extended Duration Treasury Index (NYSEARCA:EDV), which finished the year up 49.3%. This fund seeks to track the performance of an index made up of extended-duration zero-coupon U.S. Treasuries. The yield on this fund is 2.79%.

Other top Treasury ETFs this year returned between 25%-35%:

  • iShares Barclays 20+ Year Treasury Bond (NYSEARCA:TLT)
  • SPDR Lehman Long-Term Treasury (NYSEARCA:TLO)
  • PowerShares 1-30 Laddered Treasury (NYSEARCA:PLW)

The Japanese yen also had a solid year, with two ETFs focused on the currency delivering solid double-digit returns for the year. The Currency Shares Japanese Yen Trust (NYSEARCA:FXY) and iPath JPY/USD Exchange Rate ETN (NYSEARCA:JYN) ended 2008 with double-digit returns of more than 20%.

Japan’s Nikkei just closed its worst year ever, down 42%. The stronger yen has no doubt had an impact on an economy that’s already struggling, as it further tamps down demand for exports that have become more expensive to foreigners. Japan’s manufacturers are planning the biggest job cuts they’ve seen in 35 years.

The top long equity ETFs were focused on gold, closing out the year with gains in the low single digits - around 4%.