Top Five ETFs from Past Week - DRN, ERX, TAN, GAZ, RSX

Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new investing/diversification ideas. For this week, Real Estate, Energy, Solar and some emerging market bourses were the hot performers. Note that indices are breaching the highs last seen pre-Lehman collapse and corporate insider selling is picking up. While you may miss out on further upside by dumping long positions altogether, perhaps Covered Call Option Strategies are a timely move while markets may be due for at least a mild correction given the recent run. Writing covered calls allows you to continue to capture moderate upside gains while providing insurance and income against a flat/declining market. Without further ado, some of last week's hottest ETFs of the standard and leveraged genre:

DRN - Direxion Daily Real Estate 3x - Up 22% - This 3X Return Real Estate Fund was the hottest ETF from last week, up 22%. DRN is 89% since launching in July. While this sounds appealing, note that ETFs tend to launch when their underlying sectors are hot. Real estate is just emerging from a near-collapse in the US and is rallying now. The way these leveraged ETFs work, on the upside, due to daily balancing, they can actually exceed a 3X total return over a brief period of time, if the run is virtually uninterrupted. However, over a long period of time, as a trend reverses (as they ultimately all do), the 3X daily return funds do not return anything near 3 times the underlying index due to daily rebalancing. In fact, over long periods of time, they often lose as much or MORE value than the underlying sector, even during a net positive upswing. I always caution investors to understand the risks and dynamics of these poorly understood ETFs before trading (I don't use the word "investing" with 3X ETFs - see why?).

ERX -Direxion Daily Energy Bull 3X - Up 15% - This ETF seeks to return 300% of the daily performance of the Russell 1000 Energy Index. With oil prices drifting back up again this week, the underlying energy companies really took off in comparison to a nominal gain in oil for the week. Investors are possibly betting that ERX could serve as a strong leveraged hedge for another runup in oil and of course, gas prices. If the upcoming hurricane season is not as benign as anticipated or if the global economy continues to pick up steam, an onward march for oil is certainly feasible. However, given the longer term loss in value in leveraged ETFs I pointed out earlier, there are several lower risk/lower cost options out there to hedge energy prices for the retail investor/consumer.

TAN - Claymore/MAC Global Solar Energy - Up 12% - Solar stocks have been hot for varying reasons, including a recent note on subsidies from China for solar technologies which are expected to boost revenues for shares of underlying holdings. Top holdings include the usual names you'd expect to see associated with solar plays, like First Solar (FSLR), Sun Power (SPWRA), and a Chinese play Yingli Green (YGE). While many of these darlings doubled, tripled or more in 2007 and 2008, they crashed hard along with the rest of the market as oil tanked. YTD, TAN is actually underperforming the S&P500.

GAZ - Barclays iPath Natural Gas - Up 12% - Natural gas has been on a bit of an odd ride of late. It behaves much differently than oil and gasoline prices and natural gas has been hovering near historic lows for some time now. GAZ has actually lost half its value YTD. There are some energy experts touting natural gas as the true cure to our dependence on foreign oil given that it's cleaner than coal and there's enough in the US alone to last over 100 years at current energy demand rates. But there are technical, infrastructure and of course...political barriers. So, it's a bit of a roll of the dice at this point as to whether Natural Gas is going to continue to move off the lows.

RSX - Market Vectors Russia - Up 10% - Russia has also continued its ascent, up double digits for the week and 98% YTD vs 15% for the S&P500. Viewed as on the verge of default several months back, with oil rebounding and the global economy recovering, markets have viewed Russia's near-collapse in equities as overdone and investors have been buying back in in force. The ruble has recovered against the US dollar indicating the worst may be over from a devaluation standpoint. The peak trading value for RSX was close to 60 in 2008 so a double from here is at least plausible if the global economy gets back on its feet.

Disclosure: The author's only active position at the time of publication in the aforementioned ETFs is a short/hedged proprietary trade involving ERX.