Emerging market, oil ETFs shine in 2007, homebuilder, financial sectors sink

Emerging market, oil ETFs shine in 2007, homebuilder, financial sectors sink

	Published : Mon, 31 Dec 2007 19:51 By : Agencies Print this Story

NEW YORK (Thomson Financial) - In a year where the world's major equity markets staged a lackluster performance, emerging market and energy-sector exchange-traded funds were the biggest winners while homebuilder and financial ETFs fell to the bottom amid the U.S. housing slump and credit crunch.

Six out of the top 10 best-performing ETFs tracked by Morningstar as of Dec. 28 cover emerging markets, with Brazil, Russia, India and China -- the BRICs markets -- leading the gains.

The iPath MSCI India Index ETN (INP), or exchange traded note, linked to the MSCI India Total Return Index, is up 87.9% on the year.

The iShares MSCI Brazil Index (EWZ) gained 77.2% since the beginning of the year and the Claymore/BNY BRIC (EEB) rose 68.8%.

Among the other top performers, the PowerShares Golden Dragon Halter USX China (PGJ) rose 63.5%, the iShares FTSE/Xinhua China 25 Index (FXI) was up 55.5%, and the iShares S&P Latin America 40 Index (ILF) gained 50.9%.

'Emerging markets are closing another year of very strong growth,' Barclays Capital analysts wrote in a recent research note. 'It is particularly remarkable that the robust growth of the recent years has taken place despite the fourth-consecutive year of a U.S. slowdown.'

Analysts at the firm said several factors explained the are duced sensitivity' of emerging economies to U.S. growth, including the decline in participation of the U.S. as a trading partner to the developing world, strong commodity prices, and the increased importance of domestic drivers in economic growth.

Energy-related ETFs and ETNs also posted strong performance in 2007 as crude-oil prices surged toward $100-a-barrel amid rising tensions in the Middle East, supply concerns, as well as weakness in the U.S. dollar.

Three of the top 10 performers track the oil and clean-energy sectors, with the iPath S&P GSCI Crude Oil Tot Ret Idx ETN (OIL) rising 47.4% on the year, the United States Oil (USO) up 47.1%, and the PowerShares WilderHill Clean Energy ETF (PBW) gaining 60.6%.

The second-best performer this year was the only ETF in the top 10 that doesn't cover emerging markets or energy sectors. The Market Vectors Steel ETF (SLX) was up 86.9% on the year.

Homebuilder and financial ETFs were the worst performers this year, as expected, amid high profile write-downs at large banks and as the U.S. housing market continues to worsen.

The iShares Dow Jones U.S. Home Construction ETF (ITB) declined 59% on the year, according to Morningstar, and the SPDR S& Homebuilders ETF (XHB) fell 49%.

Among financial sector ETFs, the iShares Dow Jones U.S. Regional Banks (IAT) fell 26.3%, the KBW Regional Banking ETF (KRE) dropped 23.6%, and the iShares Dow Jones U.S. Financial Services (IYG) slipped 22.7%.

'The residential real estate market has struggled in 2007 and as a result homebuilding stocks have been hit hard,' analysts at Citigroup said in a research note. The firm remains cautious on the sector.

Wanfeng Zhou

wz/pc

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