The big success stories of 2011 should be well covered by now. McDonald’s (NYSE:MCD) was the best-performing Dow stock of 2011, and Bank of America (NYSE:BAC) was the worst performer in the index. Utilities and dividend stocks outperformed, as did that iconic growth stock Apple (NASDAQ:AAPL), while the biggest meltdowns came from financials and, of course, Netflix (NASDAQ:NFLX) after its Qwikster debacle.
But which picks are going to beat the market in 2012? And what are the emerging trends that still have momentum?
It’s hard to argue that slow-growth dividend payers like tobacco and utility stocks will keep up their outperformance. For instance, how does a company like Consolidated Edison (NYSE:ED) find growth if it’s a highly regulated regional utility? How does Philip Morris (NYSE:PM) get millions of new smokers amid super-high taxation and the obvious health problems associated with its products?
No, it’s unlikely that the biggest profit stories of 2011 will repeat in 2012. But some trends that have taken shape during the past 90 days indicate some interesting investments gaining momentum in the new year. And best of all, all of these sectors and investment classes can easily be played via exchange-traded funds.
Here are five market-trouncing ETFs with big 90-day returns that could tell the story of what’s working and what’s not in 2012:
Energy demand, while down thanks to the recession, has a built-in baseline. And when the economy does turn around eventually, energy stocks will benefit big-time — particularly small companies with a lot of room to grow.
That’s where the PowerShares S&P Small Cap Energy Fund (NASDAQ:PSCE) comes in. This ETF corresponds, generally, to the S&P SmallCap 600 Energy Index. Top holdings are Lufkin Industries (NASDAQ:LUFK), Seacor Holdings (NYSE:CKH) and Bristow Group (NYSE:BRS) — which admittedly make up about 30% of the entire portfolio, collectively, according to reporting this week.
The PowerShares S&P Small Cap Energy Fund has tallied 10% gains in the past 90 days, vs. about 6% for the S&P 500 Index. And if you look from the post-Thanksgiving lows, the PSCE fund has done even better, with about 20% returns.
Why the boom for small-cap energy stocks? Well, oil has once again reclaimed the $100 mark, and it appears that investment in the energy sector is gaining momentum. Small-cap stocks like Bristow and Seacor that provide services to offshore oil rigs have done quite nicely recently and might continue to outperform in 2012 — especially if Iran sanctions increase the demand for oil from other regions of the world, such as the Gulf Coast.
Don’t call it a comeback for housing just yet. The mortgage meltdown still is in full swing, with a backlog of foreclosures sitting on the books at major banks and persistently high unemployment preventing many consumers from feeling comfortable about a home purchase.
However, if you take a look at the iShares Dow Jones U.S. Home Construction ETF (NYSE:ITB), you might find a pretty good case that housing is at least near the bottom if it isn’t there yet — and that related companies are building a recovery.
Components of this fund include D.R. Horton (NYSE:DHI), Lennar (NYSE:LEN), PulteGroup (NYSE:PHM) and other big names in building. While many of the stocks in this exchange-traded fund remain a shadow of what they were in the boom times of 2005 and 2006, they have fared well in recent weeks.
The ITB fund is up a whopping 36% in the past 90 days — more than four times the S&P 500.