3 Sector ETFs That Beat the Global Credit Crisis

Most investments have found their way back to where they were in November of 2008, just as global credit was finally beginning to ease. In fact, the current bear rally/cyclical bull has recovered all that was lost to unemployment despair, recession/depression gloom and transition uncertainty.

Yet few stock ETFs can claim that their current prices are actually higher than they were 1 full year ago... BEFORE the global credit crisis meltdown hit circa September 2008. As implausible as it may seem, however, there are 3 sector ETFs that can make just such a claim.

3 Sector ETFs That Beat The Global Credit Crisis
					1-Yr Gain
Claymore AlphaShares China Real Estate (TAO)					17.25%
Market Vectors Gold Miners (GDX)					6.45%
First Trust Amex Biotechnology Index (FBT)					4.84%

Frequently, when you look at a list of "winners," they share a great deal in common. For instance, all emerging market funds are essentially outperforming developed market ETFs in 2009. It's all about the return to risk and the perception of reward... even as many of the ETF holdings may move in the exact same fashion.

Yet looking at the 3 sector ETFs here, the similarities end at the doorstep of the 1-year percentage results. In fact, the 1-year correlations between these 3 stock funds are significantly lower than the average correlation (.94) between stock ETFs. This certainly suggests that diversification across low-correlating assets can be win-win... without the need to "double" or "triple" up on the same stuff.

1-Year Correlation Coefficients For Sector Specific Stock ETFs
					TAO	GDX	FBT
Claymore AlphaShares China Real Estate (TAO)					1.00	0.70	0.60
Market Vectors Gold Miners (GDX)					0.70	1.00	0.37
First Trust Amex Biotechnology Index (FBT)					0.61	0.37	1.00

China Real Estate (TAO) has surged on the back of the Chinese infrastructure stimulus package that's put people to work as well as on the country's willingness to transfer state-owned stock wealth to the people's "social security fund." The latter may make it possible for Chinese citizens to buy property with less concern about hoarding savings.

Meanwhile, Gold Miners (GDX) has prospered on the demand for an inflation-fighting commodity with worldwide appeal. As gold prices have risen, companies that derive most of their revenue from gold mining are prospering. To be fair, of course, the Gold ETF (GLD) has done just as well with a lot less sleepless nights over the same time frame.

Finally, First Trust Amex Biotechnology Index (FBT) is an enigma all its own. Biotech stock ETFs weathered the entire storm better than any other stock sector. Yet it struggled to make headway in the March-May rally. It finally came to life in the earnings season.

As unpredictable as the biotech sector is known to be, it turned out to be one of the most stable performers through the worst part of the stock market collapse. What's more, the inherent risks may be mitigated by diversification because biotech has one of the lowest correlations with the S&P 500. And when it comes to growth, few industries have grown 7-fold over the last 15 years... from $8 billion to $56 billion.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[AndrewBaker:]

There are bthree ETF that I will buy right now to beat the global credit crisis. They are:

Gold, gold and gold.

Aug 06 10:40 AM