5 ETFs to Buy for Growth in 2012

by Nancy Zambell | January 6, 2012 9:36 am

5 ETFs to Buy for Growth in 2012

In my last couple of articles, I discussed the growth of the ETF industry[1] and how to determine what types of ETFs are smart investments[2].

Now, it’s time to figure out which ETFs look promising for your 2012 investment dollars. But first, let’s take a look back at the ETF marketplace in 2011.

According to Morningstar.com, here were the 10 worst-performing ETFs for the past year:

ETF Ticker 1-year return (%)
ProShares UltraShort Silver ZSL -66.31%
Direxion Daily India Bull 3x Shares INDL -64.22%
PowerShares DB 3x Short
25+ Year Treasury Bond ETN
SBND -63.78%
Market Vectors Solar Energy KWT -63.46%
iPath Global Carbon GRN -62.47%
C-Tracks Citi Volatility Index CVOL -62.32%
Direxion Daily China Bull 3x YINN -62.25%
Guggenheim Solar TAN -61.87%
Direxion Daily Emerging Markets
Bull 3x
EDC -61.30%
Global X Uranium URA -57.27%

As you can see, alternative energy and emerging markets didn’t fare too well last year.

And here are the top 10 performers:

ETF Ticker 1-year return (%)
PowerShares DB 3x Long
25+ Year Treasury Bond ETN
LBND 102.71%
Direxion Daily 20+ Year Treasury Bull 3X TMF 96.95%
ProShares Ultra 20+ Year Treasury ETF UBT 65.71%
Direxion Daily India Bear 3X INDZ 58.98%
PIMCO 25+ Year Zero Coupon
U.S. Treasury Index Fund
ZROZ 58.74%
Vanguard Extended Duration EDV 53.89%
Direxion Daily 7-10 Year Treasury Bull 3X TYD 44.49%
iPath U.S. Treasury 10-Year Bull DTYL 42.25%
iPath Treasury Long Bond DLBL 42.06%
PowerShares Base Metals Double Short BOM 39.34%

Huge bets on leveraged debt and Treasuries were the golden ETFs of 2011. But as I said in my last article[3], leveraged ETFs are very risky and should be purchased only by experienced, sophisticated investors who well understand their risks.

However, it’s clear that in a year when most stock market sectors saw negative, or tepid returns, fixed income was the winner. Yet a couple equity sectors outperformed, as shown by the next chart, and represented by various iShares ETFs:

Sector Symbol 1-year return (%)
Health Care IXJ 8.2%
Consumer Staples KXI 7.3%
Energy IXC -0.3%
Technology IXN -3.7%
Telecommunications IXP -4.8%
Consumer Discretionary RXI -5.3%
Utilities JXI -8.0%
Industrial EXI -8.9%
Basic Materials MXI -18.4%
Financial Services IXG -21.4%
Source: SeekingAlpha

Both health care and consumer staples managed to eke out decent returns last year, but it certainly was not a banner year for equities or equity ETFs!

So let’s look ahead and see what 2012 might have in store for us.

Notwithstanding Europe’s problems — which as we have seen, can adversely and immediately affect our stock market — I believe the economic recovery that began in 2011 is beginning to strengthen. Here’s why:

And with economic recovery comes opportunity!

We’ve seen tremendous earnings growth in the S&P 500 companies in 2011, with actual earnings beating estimates for 11 consecutive quarters. Of course, it makes perfect sense to see double-digit growth coming out of a recession. Based on low or even negative growth in many cases, it’s not difficult to see tremendous improvements.

Now, real life begins again. I fully expect earnings to continue their upward trend this year, but it would be foolish to predict the same rates of growth, since the percentage changes will be made from a higher basis.

Nevertheless, I look for continued growth in most sectors. According to a report from Bloomberg[5] this week, here are their forecasts for sector growth in FY2011 and FY2012:

Sector FY2011 Estimated
Growth (%)
FY2012 Estimated
Growth (%)
Consumer Discretionary 15.2% 8.6%
Consumer Staples 7.5% 5.4%
Energy 37.6% 2.2%
Financials 1.3% 19.3%
Health Care 7.8% 4.7%
Industrials 17.6% 13.1%
Information Technology 23.2% 13.8%
Materials 33.5% 10.6%
Utilities 2.7% -2.0%

With these numbers in mind — and with the economic statistics indicating a return to more robust growth — it would make sense for investors to follow that expected growth.

Consequently, I would recommend not only purchasing a broad-based index ETF, but also ETFs in the financial, industrial, technology and materials sectors. Here are a few you might find interesting, each with expense ratios less than 0.5%:

For investors who are looking for a bit higher risk/return ratio, you might consider the sub-categories in each of these sectors. But, as always, please do your own research to make sure that any investment you consider meets your personal goals and risk profile.

As of this writing, Nancy Zambell did not hold a position in any of the aforementioned stocks.

Note: Performance numbers from Yahoo Finance and screening from etfdb.com.

Endnotes:
  1. growth of the ETF industry: http://investorplace.com/2011/12/how-to-pick-good-etfs-bad-etfs/
  2. what types of ETFs are smart investments: http://investorplace.com/2012/01/etfs-separating-the-good-from-the-bad/
  3. last article: http://investorplace.com/2012/01/etfs-separating-the-good-from-the-bad/
  4. better-than-expected 200,000-job increase: http://investorplace.com/2012/01/december-jobs-report/
  5. report from Bloomberg: http://www.bloomberg.com/news/2012-01-03/expected-earnings-growth-for-industries-in-s-p-500.html?cmpid=msnmoney
  6. XLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLF
  7. KRE: http://studio-5.financialcontent.com/investplace/quote?Symbol=KRE
  8. VIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIS
  9. XLK: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLK
  10. XLB: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLB

Source URL: http://investorplace.com/2012/01/5-etfs-to-buy-for-2012/
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