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Ups and Downs for ETFs in 2012


The end of 2012 is here and certain exchange traded funds will close out the year with a bang, while others have hit the market with a thud. Homebuilders rebounded in 2012 beautifully, while commodities just plain underperformed.

“This year has proven to be a rather successful yet volatile year on Wall Street; equities managed to come out on top after tumultuous rounds of eurozone debt drama, fiscal cliff talks and spotty economic data. Despite the bumps in the road, many investors were rewarded quite handsomely, as certain corners of the market exhibited stellar performances,” Daniela Pylypczak wrote for ETFdb.

Will Ashworth for InvestorPlace reports that there are definite winners and losers in the ETF industry for 2012 which can confirm developing trends for 2013.

The once-loathed real estate sector delivered the best-turnaround, along with the best performance in 2012. The iShares Dow Jones U.S. Home Construction Index (ITB) gained 76.8% this year, and is considered the bellweather for new home construction. Analysts also use the homebuilder sector as an indicator for the overall health of the U.S. economy, so with a turnaround in this corner of the market, sentiment is becoming more upbeat about equities. ITB invests in 28 homebuilding companies and has pulled out of the abyss of 2008. [Will Homebuilder ETFs Maintain Momentum in 2013]

Market Veectors Biotech ETF (BBH) was the second-best performing ETF in 2012. The fund gained 51% as the sector gained investor interest as the patent cliff expired and Obamacare came into focus. Recent merger and acquisition activity also bolstered the sector. The fund gives exposure to companies that develop treatments for numerous health conditions. [Why Biotech is a Top Performing Sector in 2012]

So, on with a couple of the ugliest performances…

The US Natural Gas Fund (UNG) lost 26.1% year-to-date through Dec. 24. The end of 2012 will bring the fifth consecutive year of losses for the fund, which got its start in April 2007. Nevertheless, 2013 can be the start of a good year for UNG as increased use of natural gas has resumed. Overall, warmer weather kept natural gas prices depressed most of the year. [Natural Gas ETFs Cooling Off on Inventories, Weather]

Van Eck Market Vectors Coal ETF (KOL) lost about 23.7% this year, as growing excitement about the prospects of our domestic natural gas industry have scared off many investors from this corner of the energy market. The environmental impact of coal is one of the biggest reasons this energy source is skipped, and the Fukushima disaster in Japan last year set a fearful example. In 2011, the ETF lost 30.7%, so the downtrend has been persistent for this ETF.

The good news is that the new year is around the corner, so prospects can turn around for these downtrodden funds. However, the best-performers are also at risk for a turn, too.

iShares Dow Jones U.S. Home Construction Index


Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.