By The ETF Professor
It has been a wild ride for investors in 2011, but when all is said and done, the top performers in terms of sector ETFs this year aren't likely to surprise anyone. Well, one of them might be a surprise.
Using SPDRs as our reference point, we find the Utilities Select Sector SPDR (NYSEARCA:XLU) is up about 12% year-to-date. The Consumer Staples Select Sector SPDR (NYSEARCA:XLP) is up nearly 9%. The Health Care Select Sector SPDR (NYSEARCA:XLV) is up about 7%, while the Consumer Discretionary Select Sector SPDR (NYSEARCA:XLY), the sort-of surprise, is up about 5%. All this while the SPDR S&P 500 (NYSEARCA:SPY) is flat year-to-date.
With 2012 being an election year, it's possible investors will remain pensive, further boosting the returns of funds like XLP and XLU. Or maybe Europe will get its act together and the U.S. economy will improve to the point where risk on really comes back on.
Either way, there are scores of sector funds that will be in the spotlight next year. Here are 12 that could have big things ahead of them in 2012. In no particular order.
iShares Dow Jones US Oil Equipment Index Fund (NYSEARCA:IEZ): The iShares Dow Jones US Oil Equipment Index Fund's 2011 performance thus far can be viewed in two lights. Impressive that the ETF is only down 1% or depressing that it's down at all considering oil prices remain high by historical standards. The impact of the North American shale boom is arguably priced into many oil services stocks, so IEZ's 2012 fortunes may be more levered to increased demand in international such as Latin America and Russia.
One thing to consider: IEZ will not be left behind if oil prices keep climbing. At less than $56 with the potential to see $75 or higher, IEZ looks good here.
Global X Uranium ETF (NYSEARCA:URA): We recently argued that things probably can't get any worse for URA. Really, it's hard to imagine that happening. The fundamental out look for the nuclear energy space is strong enough that at less than $9, URA could have savvy investors laughing all the way to the bank next year.
Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ): There has been a lot of talk of gold miners not performing as well as the yellow metal itself this year. The Market Vectors Junior Gold Miners ETF is certainly guilty of that. However, what makes GDXJ all the more vexing is that miners have started to get their act together, but in the past three months the ETF is down over 21% while the Market Vectors Gold Miners ETF (NYSEARCA:GDX) is only down 10%. Simply stated, risk on needs to come back on in 2012 to lift GDXJ.
Consumer Staples Select Sector SPDR (XLP) We just mentioned XLP as one of the top performers among sector ETFs in 2011, but this run might not be in the late innings. Not if 2012 mirrors 2011 even slightly. XLP might be a good play for the first half of 2012 as that's when most of the ETF's large holdings that pay dividends raise those payouts.
iShares Dow Jones Transportation Average (BATS:IYT): With all the economic bellwethers found in this ETF, IYT's fortunes are arguably the market's fortunes. Plus, it's the ETF for all the Dow theorists out there. Should IYT break support in the $82 area, it could be a bumpy ride for this fund to start 2012.
iShares Nasdaq Biotechnology ETF (NASDAQ:IBB): We can say one thing for the iShares Nasdaq Biotechnology ETF: It has performed quite well this year, up over 9%. And we can say one thing for the biotech sector: There are always trades to be had. Home to 122 stocks, IBB has plenty of buyers and sellers for biotech consolidation, of which there should be some next year. The ETF is a buy if you can get it on a pullback to $95.
iShares S&P Global Financials ETF (NYSEARCA:IXG): We could have gone with an ETF that only tracks U.S. banks or one that only tracks non-U.S. banks, but since almost ALL large banks have been stinking up the joint for over a couple of years now, IXG and its 220 stocks make life easy for those that like to be involved with financials. Germany, France and Spain account for 9% of IXG's country weight and unless things change quickly, that will be a problem next year.
First Trust ISE Cloud Computing Index Fund (NASDAQ:SKYY): Much has been made of niche sector ETFs like the First Trust ISE Cloud Computing Index Fund. Critics love to assail these ETFs, saying they're not necessary. Well, someone likes SKYY because it has accumulated over $65 million in assets under management since its July debut. The growth of cloud-computing and the potential for industry consolidation make SKYY an interesting sub-sector play in 2012.
Global X Social Media ETF (NASDAQ:SOCL): Talk about a tech ETF that has been under fire - hating on the Global X Social Media ETF is like a sport for some pundits. We beg to differ. With the looming Facebook IPO, SOCL could be legitimized sooner than later. Frankly, this is a sound concept and there's no legitimate reason to bash this fund. If the alpha is there, investors will come.
SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP): There are lots of energy ETFs. Roughly 80 if we're trying to be somewhat precise. Few offer the combination of exposure to integrated oil stocks, independent producers and mid-cap M&A targets as XOP does. Plus, XOP is valid way of getting exposure to just about every shale play in the U.S. and the ETF's volatility is great for short-term traders. For those that handle the volatility, XOP could see the $70 area in a favorable market next year.
First Trust NASDAQ ABA Community Bank ETF (NASDAQ:QABA): QABA isn't the newest ETF on our list, but it might be the most obscure. It only has $12.6 million in AUM and average daily trade of less than 2,600 shares. On the bright side, QABA has outperformed the ETFs tracking major bank stocks this year and most of its holdings have not been dividend offenders. If you're going to dance with devil, er financial sector ETFs, QABA merits consideration.
Guggenheim Solar ETF (NYSEARCA:TAN): We debated including an ETF that trades for less than $5 on this list, but after being one of the worst-performing ETFs in 2011, things have to get better for TAN next year, right? Not necessarily. If the things don't get sunny fast for solar stocks, TAN's race to $0 will only be prevented by a reverse split, an event that probably should have happened already.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.