In the last five years, investors have witnessed a variety of market conditions. Stocks were relatively strong in the middle part of 2007 but, as we all know, proceeded to fall apart during the turmoil of 2008 and one of the worst recessions in recent memory.
After the bottom in March of 2009, stock nearly doubled over the next 18 months, although they have seen some weakness to close out recent trading, falling back to break even on the year. After all of this volatility, the most popular ETF in the world, the SPDR S&P 500 ETF (SPY) has actually lost about 11.5% in the past five years leaving many investors worse off than they were at the beginning of this relatively long time period.
However, while broad markets have had trouble recouping their gains after the market slump in 2008, some other funds have managed to surge higher despite the turmoil. In fact, a number of more focused ETFs have seen gains exceeding 50% in the time period in question, crushing the broad benchmark in the time frame (see the Ten Biggest U.S. Equity Market ETFs).
Below, we highlight five of the strongest ETF performers during this uncertain time that have done well without the use of leverage or inverse techniques. While most have seen significant weakness as of late, these products still represent the cream of the crop for returns over the last few years and look to be products to watch in the years ahead for continued outperformance or a drop back to earth should investors shift to new funds heading into the second half of 2012:
Despite fears of a patent cliff in some of the major drug companies, the broad pharma space has soared in the last five years. The segment has greatly outperformed those that are outside the health care world, and has certainly been helped by its role as a ‘safe haven’ in the market (see Health Care ETFs in Focus on Obamacare Supreme Court Decision).
Thanks to this, as well as high dividends and decent growth prospects, many pharma ETFs have been among the top performers over the last half decade. Not only did much of the sector lose less in the 2008 debacle, but many have come back quite strongly in the years following the crisis, helping the segment to outperform others in the time period.
In this space, the PowerShares Dynamic Pharmaceutical ETF (PJP) has led all comers, gaining roughly 77.5% in the last five years. The product has a decidedly large cap focus while it employs a type of equal weight methodology that ensures no one company dominates the fund.
Long Term Treasury Bond ETFs
As a result of the market turmoil and the rush to T-Bills, investors have seen huge gains in the Treasury ETF market. Since inflation is still low and rates appear to be suppressed for quite some time, a great deal of interest has been seen in particular at the long end of the curve.
This is important because long-dated bonds tend to be more sensitive than their short term counterparts when interest rates are shifting. Since rates have plunged to historic lows over the past five years, this has been a boon for long-term debt, pushing securities focused on this segment up sharply higher in the time period.
In particular, investors have to be quite happy with the performance of the iShares Barclays 20+ Year Treasury Bond Fund (TLT). This fund has added close to 81.5% in the past five years include a nearly 38% gain in the past 52 weeks alone (also see Are The Fundamental Bond ETFs Better Fixed Income Picks?).
This fund has an effective duration of 17.33 suggesting that the product is pretty sensitive to interest rate moves. Meanwhile, the weighted average maturity comes in at close to 28 years and the 30 Day SEC Yield is roughly 2.5%, two factors that have undoubtedly helped TLT as bond rates have plunged, the dollar has soared, and safe havens have become in demand.
Another big winner in the health care ETF world has been in the biotech market. This segment has benefited from strong growth prospects and new drugs in a variety of companies in the various biotech indexes.
Additionally, biotech firms have been thought of as a takeover targets by cash rich, drug pipeline poor, pharma companies as many of these firms deal with the loss of some of their blockbuster drugs. With this backdrop, investing in the biotech ETF space has been incredibly popular even despite its relatively volatile history.
The biggest winner in the biotech ETF space over the past five years has been in the case of the First Trust Amex Biotechnology Index ETF (FBT). This product has surged by 84% in the past five years while it has doubled in the last three year period (read Forget Big Pharma, It is Time For A Biotech ETF).
FBT employs an equal weight methodology to its investment strategy, focusing on the First Trust NYSE Arca Biotechnology Index Fund. Growth securities make up a majority of assets while large caps only account for about 40% of assets.
Given this focus on small caps and growth, it is somewhat curious to see this product on what amounts to a list of safe havens. Nevertheless, it shows just how good of a growth prospect the segment has been over the past few years while most other corners of the economy have been flat to negative.
Although silver is one of the more volatile commodities on the market, it has seen solid gains over the past five years including doubling in the time frame. This is in addition to an 88% gain in the past three years, although shorter time frames—such as a 20% loss in the past year—haven’t exactly been favorable.
Still, thanks to easy money policies across the globe, silver demand has been surging as of late. This is because some investors few the product as a great way to hedge against currency debasement while also obtaining a metal that has a number of industrial uses (see the Guide to the 25 Most Liquid ETFs).
While this has been under fire as of late thanks to a possible slowdown in the economy and a stronger dollar, the long-term future of silver is still bright. The product is more easily accessible to emerging market investors who want to protect against inflation while the white metal has a number of important industrial uses that seem unlike to go away anytime soon.
In terms of performance, the iShares Silver Trust (SLV) has been the best for silver in the time frame in question. The product has added 111.6% in the last five years, although it has suffered greatly so far in 2012.
Still, the ETF is a relatively cheap way to access the silver market with impressive levels of liquidity to boot. The fund charges investors 50 basis points a year while it sees volume of about 17 million shares a day, suggesting extremely narrow bid ask spreads.
Others in this sector with strong performances: DBS.
Over the past five years, not a single unleveraged ETF, in any category, has beaten out gold. The yellow metal has been in focus much like silver due to its role as a hedge against a weak dollar and inflation.
However, unlike the white metal, gold doesn’t really have a whole host of industrial applications, ensuring that monetary issues are the primary driver of the product’s performance. Thanks to this, the metal has been a great proxy for the declining faith in central banks and their ability to get us out of the current malaise without stoking the fires of inflation.
There are a number of gold ETFs that have been in the market for at least five years but the best performing over the last half decade has been the iShares COMEX Gold Trust (IAU). This product has added a whopping 138% in the last five years and has also surged by 66% in the last three years (read The Comprehensive Guide to Gold ETF Investing).
The product has managed to squeak by its popular counterpart, GLD, thanks to its lower expense ratio. This expense difference—15 basis points in total—has been a big driver of the difference while the methods in which the products allocate to gold on a daily basis (IAU has a 100% daily allocation to the underlying metal while GLD does not) also contributes a bit to the performance differential.
Either way, both products—and the gold sector at large—have been big winners over the past five years and have led all others in terms of gains during this tumultuous time.
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Follow @Eric Dutram on Twitter
Author is long gold and silver bullion as well as IAU.
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