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3 Investments That Crushed the Dow in 2011

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2011 was a scary year for investors. But if you'd simply closed your eyes at the end of 2010 and opened them in time for your New Year's party this weekend, you'd probably just yawn and go back to sleep -- because at this rate, the S&P 500 is in for its flattest year in more than four decades. Even the Dow Jones Industrials (INDEX: ^DJI  ) are only up about 6% so far in 2011.

Needless to say, laying a goose egg may be better than a huge drop like we saw in 2008, but it's not anything to get excited about, either. But even if the stock market disappointed you this year, plenty of investments were able to do far better. Let's take a look at three of them to see if we can find any clues to what will continue to outperform the markets in 2012.

Bonds top the charts
Perhaps the most surprising outperformer of the year came from Treasury bonds. Throughout the year, expert investors like bond maven Bill Gross believed that Treasuries were grossly overvalued and poised for a big correction. He sold out his entire Treasury stake from his massive PIMCO Total Return Fund, only to admit defeat later in the year after missing out on a huge run.

For Treasury bulls, the results were amazing. The iShares Barclays 20+ Year Treasury ETF earned a 30% total return for the year. But on the other side of the coin, bears got crushed, with the leveraged ProShares UltraShort 20+ Year Treasury losing nearly half its value.

Outside Treasuries, bonds didn't do as well. That may be because huge issuance from companies including Sprint Nextel (NYSE: S  ) , Dow Chemical (NYSE: DOW  ) , and Amgen (Nasdaq: AMGN  ) flooded the market with supply. But then again, with huge budget deficits, there was certainly a glut of Treasuries available as well. Eventually, the ridiculous demand for Treasuries has to slacken -- but trying to guess when has proven to be the downfall of many investors.

Gold wins again
Lately, the drop in gold prices from $1,900 to its current level below $1,600 has gotten a lot of attention. But even with the drop, gold prices are still up about 12% this year, giving investors in bullion-tracking ETFs like SPDR Gold a good 2011.

The problem for many investors, though, is that gold miners largely failed to follow suit. In particular, small stocks like Brigus Gold (NYSE: BRD  ) and Paramount Gold & Silver (AMEX: PZG  ) suffered huge losses of 40% or more. Although returns on mining stocks often end up being much more volatile than the underlying metals they mine, 2011 was nevertheless a huge disappointment.

Yet with low interest rates, geopolitical and economic woes, and ongoing concerns about fiat currencies, gold's long-term trend doesn't seem ready to reverse just yet. Until the Fed yanks cheap money away from hungry investors, I expect gold not to do anything more extreme than put in a mild correction before working itself back toward its 2011 highs.

Utilities: safe and profitable
Even within the stock market, certain sectors crushed the rest. Utilities were a big outperformer, with the SPDR Select Utilities ETF jumping 19% year-to-date.

In an uncertain economic environment, utilities provided a lot of security. Income-starved investors were hungry for their high-dividend yields, while the regulatory environment that many top utilities operate under gives them predictable, dependable profits.

Even utilities that faced major challenges in 2011 did reasonably well. Exelon (NYSE: EXC  ) , for instance, initially seemed vulnerable as the Japanese earthquake called the viability of nuclear power generation into question. Yet the stock is still up about 10% for the year.

As long as dividends remain in vogue, utilities will have plenty of investor support. Don't expect a huge blockbuster year from utilities in 2012, but betting on continued modest growth makes sense.

Get ready for 2012
Just because these three investments crushed the stock market in 2011 doesn't mean that they will next year. Although conditions still look favorable for utility stocks and gold, bonds seem poised for a drop. Moreover, if the stock market gets out of its doldrums and performs well in 2012, it could easily leave all these investments in the dust.

If you want to swing for the fences with an individual stock, you should take a look at our pick for the top stock for 2012. It's free in the Motley Fool's latest special report, but it's only available for a limited time. So click here and read it today.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter here.

Fool contributor Dan Caplinger hopes you have a bright, prosperous 2012. He doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of and writing a covered strangle position on Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy crushes the competition.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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