November ETF Performance Review

Bonds, biotech and agriculture led the market higher in November, according to the ETF market returns, while homebuilders, natural gas and … in a surprise twist … China brought up the rear.

The HealthShares Cancer ETF (HHK) was the market’s top performer last month, rising 6.71% on strength in the biotech market. Five bond ETFs also made it into the Top 10 list for November, showing the overall weakness in the equity markets.

The top 10 was rounded out by three commodity funds: two focused on agriculture and one focused on energy.

Net-net, it was a difficult month for ETFs. Of 554 ETFs with one-month data available from Morningstar, just 83—or 15%—posted positive net performance. The mean performance was -4.57%.

(Leveraged and short funds have been excluded from this survey.)

On the other side of the equation, the bottom performers were dominated by ETFs tied to the real estate market, with three REITs and two homebuilder ETFs landing in the bottom 10. The worst-performing ETF of all was the iShares Dow Jones US Homebuilders ETF (ITB), down 18.02% and now down 59.23% for the year. Also in the bottom 10 were commodity funds tied to Nickel and two funds tied to the volatile Natural Gas markets. A tech fund and—in a twist—the iShares FTSE/Xinhua China ETF (FXI) rounded out the bottom 10. FXI fell 12.9% for the month, as some of the air came out of the China bubble; still, it is up nearly 67% this year.

YTD Performance

Looked at with a longer time horizon, however, nothing much changed on a year-to-date basis from October. Nine of the top 10 best-performing ETFs on a year-to-date basis were among the top 10 at the end of October, while nine of 10 worst performers from October remained at the bottom of the heap.

Top Performers - YTD
Emerging markets remain at the head of the class on a year-to-date basis, with eight of 10 top-performing ETFs tied directly to emerging markets. A ninth, the iShares MSCI Hong Kong Index Fund (NYSEArca: EWH), is technically a developed market but is closely aligned with China.

Interestingly, none of the top 10 funds achieved positive returns for November, a sign that investors may be pulling back from hot markets. In fact, the top 25 year-to-date performers all delivered negative returns in November. The top performer year-to-date is the Market Vectors Steel ETF (AMEX: SLX), which was up 82.31% in the first 11 months of 2007, despite falling 2.38% in October. Beyond that, it was BRIC BRIC BRIC, with funds tied to China and India leading the charge.

Three regional funds also made the Top 10 list. The iShares S&P Latin America 40 Index Fund (NYSEArca: ILF) landed in the No. 7 slot, likely because Brazil represents nearly two-thirds of the total index. And the Vanguard Emerging Markets ETF (AMEX: VWO) and BLDRS Emerging Markets 50 ADR ETF (NASDAQ: ADRE) filled out the top 10, as emerging markets carried the day.

Worst Performers – YTD
All of the worst-performing ETFs year-to-date continued their declines in November, with the home construction ETFs showing the steepest declines. The iShares Dow Jones Home Construction ETF (NYSEArca: ITB) is not only the worst-performing ETF year-to-date, down 59.23%, it is also the worst-performing ETF for the month of November, down 18.02%.

Outside of homebuilders, banking and finance-related ETFs filled out the bottom 10, as the credit crunch took its toll. Regional banks suffered the most, with two regional banking ETFs landing on the shame list. The remaining bottom performers are a hodgepodge: the PowerShares Dynamic Retail Portfolio (AMEX: PMR), which fell 9% in November; the Rydex S&P SmallCap 600 Pure Value ETF (AMEX: RZV), which has suffered from a pullback in small caps and value; and the Claymore/Sabrient Stealth ETF (AMEX: STH), which is down 15% this year largely on small-cap weakness.

Country Funds

On a country basis, Brazil and China continue to dominate the list of top performers, with the iShares Brazil (EWZ) turning in the best year-to-date performance.

For November, however, Spain was the only country ETF with positive performance, delivering a whopping 0.58% gain. It was a bad month to be a global investor.

The worst year-to-date performer on a country basis is no contest: Japan, Japan and more Japan. Japanese ETFs make up the five worst-performing country ETFs, with two small-cap Japan ETFs bringing up the very rear. Japan is essentially the only global market in the ETF space with negative YTD returns.

U.S. Size/Style Analysis

On a size/style basis, large-cap and growth stocks continue to lead the market year-to-date, while small caps and value bring up the rear. Looking at the nine U.S.-style boxes as represented by the iShares S&P funds, mid-cap growth is strongly outpacing the rest of the market, rising 13.21% this year compared with 8.76% for the second-place fund. YTD performance is bracketed by small-cap value, down 4.67%.

Across the board, large-caps and growth funds are outperforming small-cap and value.

For November alone, the best-performing segment was large-cap growth, although even that segment was down 3.52%. Still, on a relative basis, that was pretty good: All three small-cap style box funds fell more than 7% on the month.