Top Four ETFs from Last Week - TMV, RTL, PSR, DRN

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Includes: DRN, PSR, RTL-OLD, TMV
by: Everyday Finance

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, Financials and Real Estate continued to rally. The Short Treasuries ETF was back in force.

DRN - Direxion Daily Real Estate 3x - Up 44% - This 3X Return Real Estate Fund was the hottest ETF from last week, up 44%. DRN is 100% since launch 3 weeks ago. While this sounds appealing, note the 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 triple return 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, as real estate has been. However, over a long period of time, as a trend dwindles (as they all do), the 3X daily funds do not return anything near 3 times the underlying index due to daily rebalancing. 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).

PSR - Powershares Active US Real Estate - Up 18% - This is an "actively managed ETF" which may sound like a bit of a misnomer. The fund will invest at least 80% of assets in securities of companies that are principally engaged in the U.S. real estate industry and included within the FTSE NAREIT Equity REITs Index. It is free to utilize the balance of the assets for additional exposure to other real estate or alter the weighting of its holdings. Note that it just barely outperformed the passive low-fee ETF VNQ from Vanguard. While it's still early since launch, in lieu of some obvious outperformance, it may be wise to just opt for VNQ with lower fees.

RTL-OLD - iShares FTSE NAREIT Retail Cp Idx - Up 17% - This investment seeks to replicate the FTSE NAREIT Retail Index. What's particularly interesting about this one is that not only have Real Estate Investment Trusts been rallying alongside real estate and housing, but REITs are well-known for their high yields. As evidenced by this list of the high yield large cap stocks, there are still some gems out there yielding 5%-8% annually with long payout histories and enormous market caps to back them up. However, this ETF is anticipated to yield 9% given its new launch status. For a more established Real Estate ETF with a high yield, also consider IYR at 8%.

TMV - Direxion Daily 30-Year Treasury Bear 3x Shares - Up 15% - This 3x leveraged ETF seeks to actually exploit improving market conditions that result from a flight FROM safety by driving up the yield (or price lower) on 30 year Treasuries. Recall that in 2008, we were seeing record lows for yields on Treasuries and in some cases, investors were accepting a negative yield on short dated securities just to have somewhere to stash their funds during the storm. Now, Treasury yields have risen dramatically since earlier in the year and it's possible that the easy money's been made already. However, if you foresee a continued exodus from Treasuries into more risky assets, this would be your play short-term.

Disclosure: no positions in the aforementioned ETFs.