ETF Specialist

2008's ETF Winners

John Gabriel

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. Scott Burns, director of ETF Analysis wrote an article at the end of September discussing some theories as to why there has been such a divergence in asset flows between ETFs and their open-end mutual fund brethren. 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. 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 ETFInvestor. We'd encourage interested readers to check out our analysis to get more detail on this counterintuitive top performer.

 Equity ETFs

% Return

2008 Cash
Inflows (MM)
SPDR S&P Pharmaceuticals (XPH)
34.559 43.656
SPDR S&P Biotech (XBI)
283.645 465.899
PowerShares Dynamic Pharmaceuticals (PJP)
72.313 147.122
PowerShares Dynamic Banking PJB
77.847 114.987
iShares Nasdaq Biotechnology (IBB)
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. Morningstar ETF Strategist Paul Justice wrote an insightful piece on the use of gold as a disaster hedge that should be informative and enlightening to investors on both sides of the deflation/inflation debate. 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.

 Commodity ETFs

% Return

2008 Cash
Inflows (MM)
iShares COMEX Gold Trust (IAU)
338.798 1,896.305
SPDR Gold Shares (GLD)
4,658.863 21,691.122
PowerShares DB Gold (DGL)
39.265 83.663
PowerShares DB Precious Metals (DBP)
33.877 77.297
PowerShares DB Agriculture (DBA)
476.023 1,063.897

* Data as of 12-31-2008.


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John Gabriel does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.