2008's ETF Winners

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  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  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
	2008 % Return	2008 Cash Inflows (MM)	AUM (MM)
SPDR S&P Pharmaceuticals	-7.94	34.559	43.656
SPDR S&P Biotech	-8.81	283.645	465.899
PowerShares Dynamic Pharmaceuticals	-10.56	72.313	147.122
PowerShares Dynamic Banking	-12.58	77.847	114.987
iShares Nasdaq Biotechnology	-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. 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  to make the cut, despite posting a loss of almost 20% in 2008.

Commodity ETFs
	2008 % Return	2008 Cash Inflows (MM)	AUM (MM)
iShares COMEX Gold Trust	5.42	338.798	1,896.305
SPDR Gold Shares	2.99	4,658.863	21,691.122
PowerShares DB Gold	2.83	39.265	83.663
PowerShares DB Precious Metals	-2.99	33.877	77.297
PowerShares DB Agriculture	-19.51	476.023	1,063.897
* Data as of 12-31-2008.

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