Inverse, Healthcare ETFs Raise the Roof in July

by: IndexUniverse

By Murray Coleman

As the old investing adage goes, the enemy of short-term stock trading is a sideways-moving market.

In July, that certainly wasn't the case. As broader markets were selling off, exchange-traded funds focusing on banks and biotech showed relative strength in the month. Even those investing in real estate investment trusts outperformed.

But the biggest winners were bear market ETFs, which focus on shorting positions in anticipation of falling market conditions, and all different types of health-care-related funds. Some 16 of the top 25 performers in July came from those two sectors alone. Both produced the same number of leaders (eight each) among the top performers of the 797 ETFs tracked by 

While the S&P 500 index declined 0.99% in July, the Rydex Inverse 2x S&P Select Sector Energy ETF (AMEX: REC) gained 33.42%. It was the top returner in the month. But the new ETF joined the UltraShort Oil & Gas ProShares (AMEX: DUG) up over 30% last month. Despite its 31.71% jump in July, DUG remained down for the year overall by 1.96% heading into August.

Other bear-focused funds that scored big gains in July were: the PowerShares DB Crude Oil Double Short ETN (NYSE: DTO), up 23.60%; the DB Commodity Double Short ETN (NYSE: DEE), up 22.42%; the Short Oil & Gas ProShares (AMEX: DDG), up 15.50% and the UltraShort Utilities ProShares (AMEX: SDP).

Some bears didn't roar nearly as loudly as others, however. In July, the Short S&P 500 ProShares (AMEX: SH) gained 0.72% and the UltraShort Russell MidCap Value ProShares (AMEX: SJL) returned 0.58%. 

Increased Volatility 

"The individual sector ETFs are going to be a lot more volatile than the broader market funds," said Anthony Welch, an independent portfolio manager at Sarasota Capital Strategies. "In July, that worked in the favor of ETFs tied to indexes that were shorting specific sectors, particularly commodities. But when you're investing that narrowly, things can change very quickly."

As a result, he doesn't recommend that investors chase the hot returns from month to month. But Welch does keep a keen eye on positions he holds in sector ETFs, not necessarily to trade but as a defensive measure. He also likes to keep up with the technical signals of his holdings.

"With sector and inverse ETFs, you've got to watch them like a hawk," Welch said.

The third-best performance in the month came from the iShares MSCI Turkey Index (NYSE: TUR), which rose 26.77%. Right behind it was the iPath DJ AIG Lead ETN (NYSE: LD), up 24.42% in the month.

While bear market ETFs were leaders, only two ETFs classified as long natural resources funds made it into the top 25 in July. Those were the E-TRACS UBS Short Platinum ETN (NYSE: PTD) and the PowerShares DB Crude Oil Long ETN (NYSE: OLO). Both were up by double digits in the month.

In a bit of a departure, the iShares FTSE NAREIT Residential (NYSE: REZ) came in at No. 25 by returning 10.69% in the month.

With financials doing better, it wasn't surprising that ETF targeting related sectors did relatively well in July. The broadly based Financial Select Sector SPDR (AMEX: XLF) rebounded to gain 7.11% in the 30-day period, although it was still down nearly 25% for the year.

As a group, financial-minded ETFs placed four ETFs among the top 25. Those were (by ticker, name and monthly return): 

  • (AMEX: KBE), the SPDR KBW Bank (14.22%)
  • (AMEX: KRE), the SPDR KBW Regional Banking ETF (13.99%)
  • (AMEX: PJB), the PowerShares Dynamic Banking Portfolio (11.89%)
  • (NYSE: IAT), the iShares Dow Jones U.S. Regional Banks Index (11.59%)

The eight best-performing health care ETFs were (by ticker, name and July returns):

  • (AMEX: XBI), the SPDR S&P Biotech ETF (20.14%)
  • (AMEX: FBT), the First Trust AMEX Biotechnology Index (17.07%)
  • (NYSE: HHJ), the HealthShares Emerging Cancer ETF (16.97%)
  • (AMEX: IBB), the Nasdaq Biotechnology Index (15.57%)
  • (AMEX: PBE), the PowerShares Dynamic Biotech & Genome Portfolio (14.93%)
  • (NYSE: HHK), the HealthShares Cancer ETF (14.59%)
  • (NYSE: HHU), the HealthShares GI/Gender Health ETF (13.04%)
  • (AMEX: RXL), the Ultra Health Care ProShares ETF (11.45%)