6 Hottest ETFs of the Week

It was a rough week for equities this week, falling 4%, as the bad news continues to pile up with little end in sight for the slow growth, stagnant unemployment picture.  There were some interesting data points out this week, including a surprisingly high savings rate in the US, the notion that consumers are using their holdings for things like paying down debt and cash-in refinances instead of consumption, and an unsettling feeling starting to set in that we may in fact be headed for a double-dip Recession, which nobody in a position of prominence in the administration wants to admit for fear of creating a panic.  In fact, the press may just be helping this prophecy along by jumping all over the story about the Hindenburg Omen which was triggered last week (note, because of the selloff).

With that backdrop, most of the winners for the week were short ETFs, so here’s how some of the traditional and leveraged winning ETFs (and ETNs) shook out and what to watch for next week:

Non-Leveraged:

VXX – Volatility Index ETN – Up 11% - The best performing of the non-leveraged ETFs was the volatility index ETN which is reasonable to expect.  VXX tends to spike during market downturns and then falls during flat or rising markets.  Note that there’s a new way to short volatility with the anti-VXX as well if you sense the end of the downturn.

SGG - Barclays iPath Sugar ETN – Up 5% – Sugar’s been on a run of late and I’m not sure which hypothesis is most plausible.  There hasn’t been a severe change in either supply or demand but one theory out there goes along with the story of the “Fall of the West, Rise of the Rest” in which case, with the emerging markets starting to acquire western preferences for foods, on a secular trend basis, we may see meaningfully higher demand for sugar in the future which could oustrip supply at current prices.

PFF - iShares Preferred Stock ETF – Up 1% - You might be wondering how an index comprised primarily of financial companies could rise when the broader market tanked; well that’s due to the beauty of Preferred Stocks (PFF profiled in more detail) in that they act as a hybrid of conventional stock and a high yield bond and continue to pay out as long as the underlying corporation remains solvent.  Investors have been hungry for yield in this low-rate environment, so Preferreds have benefited as a result.

Leveraged ETFs:

TZA – Direxion Daily Small Cap Bear 3x – Up 20% – Small caps took it on the chin given their high Beta compared to broader market issues, as well as the fact that recent fears over a double dip recession and another round of restricted access to credit would crimp earnings and threaten the solvency of small caps especially hard.  Of all leveraged ETFs to be holding during a market crash, TZA is a top choice, although I don’t recommend holding any leveraged ETF for an extended period of time given the value decay over time that occurs.

TYP - Direxion Daily Technology Bear 3x – Up 19% – Tech stocks were walloped last week due to bad news out of key names.  Between Cisco’s (CSCO) disappointing earnings release and the resignation of Hurd from (HP) over a seemingly immaterial scandal, some of these heavily weighted large caps brought down the Tech indices, not the mention the broader market decline we saw elsewhere.

SCO - ProShares UltraShort Oil (2X) – Up 14% – Oil prices dropped significantly last week given the overall global market decline.  There tends to be a relatively strong correlation between oil and equities during intense moves since industry and consumers utilize more oil in good times and less in bad times.  With fears of everything from deflation to another global recession, some fear we may see oil in the low 30s again like the last oil crash and don’t want to be holding oil at these levels.

Disclosure: No position in any ETFs/ETNs covered in this article.

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