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2008's ETF Winners

ETFs are gathering assets amid the market malaise.

John Gabriel, 01/20/2009

In 2008, ETFs experienced total cash inflows of approximately $160 billion, with much of the action occurring in the back half of the year when fear trumped greed and markets went into panic mode. Despite the huge inflows that ETFs enjoyed during the year, assets under management still fell about 7% year over year--simply a function of the broad-based declines in the markets.

While the new year is a perfect time to look ahead and plan accordingly for what we think is in store for 2009, we first thought it would be interesting to take a look back at 2008 to see which ETFs were the top performers in their respective categories. We also examined which funds gathered the most assets throughout the year.

Not surprisingly, the top-performing equity-focused ETFs came predominantly from funds offering exposure to the health-care and biotechnology sectors. This was to be expected as these are two classically defensive industries in which demand is relatively unaffected by the overall economic climate. In our view, health care is poised to continue performing well over the next few years and still represents a compelling value, hence our overweight position in iShares Global Health Care IXJ in our ETFInvestor Hands-On Portfolio.

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What jumps out at us is that a banking ETF made the cut for the top-five performing equity ETFs. We've highlighted just how PowerShares Dynamic Banking PJB managed to outperform its peers by such a wide margin in our analyst report as well as in the November issue of Morningstar's ETFInvestor newsletter. We'd encourage interested readers to check out our analysis to get more detail on this counterintuitive top performer.

 Equity ETFs
 

2008
% Return

2008 Cash
Inflows (MM)
AUM
(MM)
SPDR S&P Pharmaceuticals XPH
-7.94
34.559 43.656
SPDR S&P Biotech XBI
-8.81
283.645 465.899
PowerShares Dynamic Pharmaceuticals PJP
-10.56
72.313 147.122
PowerShares Dynamic Banking PJB
-12.58
77.847 114.987
iShares Nasdaq Biotechnology IBB
-12.68
229.484 1,475.195
* Data as of 12-31-2008.

The usual suspects populated the list of top performers in the commodity complex. Precious metals (primarily gold) were the big winners among commodities, as investors fled risky assets and parked their cash in so-called safe havens. Fears of excessive inflation (down the road) probably played a role as well, considering the unprecedented level of money printing by the Federal Reserve in an attempt to rescue the ailing financial system. Separately, the precipitous drop in the price of energy, basic materials, and metals in the back half of the year paved the way for PowerShares DB Agriculture DBA to make the cut, despite posting a loss of almost 20% in 2008.

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