Index funds have long been a Foolish way to gain instant, low-cost diversification without worrying about timing the market. Their ease and convenience may explain the growing popularity of exchange-traded funds -- mutual funds that trade like stocks. According to the Investment Company Institute, ETF assets totaled more than $572 billion of the more than $1 trillion in stock index funds as of Nov. 30.
Originally modeled after index funds, ETFs have gradually narrowed to target specialized slices of the market. While that's a boon to investors seeking specifically targeted investments, it also concentrates the risks of specialization, tilting a portfolio away from the diversification that makes index investing attractive.
Today, we're looking at the best-performing ETFs year to date and then combining that information with the collective intelligence of the professional and novice investors at Motley Fool CAPS. We'll see our participants have to say about these funds.
|
ETF |
YTD Return |
1-Year Return |
CAPS Rating (out of 5) |
|---|---|---|---|
|
iPath Dow Jones AIG Natural Gas Total Return Sub-Index |
55.63% |
NA |
***** |
|
United States Natural Gas |
47.95% |
1.65% |
**** |
|
PowerShares DB Energy |
44.96% |
84.82% |
*** |
|
iPath DJ AIG Energy TR Sub-Index ETN |
44.65% |
NA |
NR |
|
ELEMENTS Rogers Int'l Commodity Energy ETN |
42.42% |
NA |
NR |
|
PowerShares DB Oil |
41.81% |
91.82% |
** |
|
iPath S&P GSCI Crude Oil Total Return Index ETN |
41.69% |
68.68% |
** |
|
iPath S&P GSCI Total Return Index ETN |
33.64% |
44.35% |
NR |
|
iShares S&P GSCI Commodity-Indexed Trust |
33.56% |
68.93% |
**** |
|
PowerShares DB Commodity Index Tracking Fund |
32.54% |
68.45% |
**** |
Sources: The Wall Street Journal and Motley Fool CAPS. NA = not available. NR = not rated.
Tread carefully here, Fools; the market offers many exchange-traded funds and securities that look like funds, but aren't -- like exchange-traded notes. Moreover, few have a long history. None of those shown here have a three-year performance standard, an arguably important milestone, and only time will tell whether they can build solid track records over longer time periods.
Climbing a wall of opportunity
Another unique type of investment is what is called an exchange-traded security, such as United States Natural Gas. Here's how my Foolish colleague Zoe Van Schyndel introduced the fund, which gives investors some high-risk exposure to hedge natural gas prices, after its debut last year:
Although it might trade like an ETF and is listed on an exchange, United States Natural Gas Fund is an exchange-traded security, not an ETF, a fact that may give some investors gastrointestinal pain. That's because the fund is designed as a commodity pool and is organized as a Delaware limited partnership. This distinction is important, because it means you don't have the protections provided to ETFs under the Investment Company Act of 1940. The differences between these two types of investment pools can be significant.
Top-rated CAPS investor ww2004, with a 99.24 player rating, likes USNG's hedging characteristics and the long-term trend for natural gas prices:
Natural gas storage is on the low side in the U.S. and not likely to build up, over the summer, to the level needed for this winter. Combined with heating oil prices that will remain high, natural gas will continue [its] upward trend[.] Medium term, nat gas is the best alternative to oil for a transportation fuel. Long term, North American production is likely to remain at the current level for several years before decline sets in.
A basket of opinions
Although ETFs have been around since the 1990s, investors should exercise caution with any ETF lacking a long track record. Over on CAPS, let us know whether you think these ETFs will continue to outperform, or whether it's time for new ones to top the lists.
