The Best ETFs of 2011: TLT, GLD, IHE, XLU

December 20, 2011, 09:42 am ET, BY Billy- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Our Trading Reports in this Article:

• TLT
• GLD
• IHE
• XLU

This year has been a disappointing year for most ETF investors. Nearly 80% of the 1,381 ETFs tracked by Morningstar were unable to generate positive returns in 2011. Those that were able to make advances came from some of the least likely areas of the market. Here are four of the year’s best performing non-leveraged, non-inverse ETFs.

What Downgrade?

In August, Standard & Poor’s removed the U.S. government’s AAA sovereign credit rating for the first time in history. This move actually added fuel to the advance of the iShares Barclays 20+ Year Treasury Bond Fund (NYSE:  TLT). Year-to-date, TLT has risen 30.0%.

Even though S&P expressed its dismay with Washington’s spending habits, traders have speculated that U.S. debt is a safer investment than its European counterpart offerings which have come under siege. With such few areas of the market succeeding in 2011, traders piling into long term Treasury bonds have made this fund a leader in the ETF space.

Another safe haven asset class that has worked in 2011 has been gold. Despite a recent pullback, the SPDR Gold Trust ETF (NYSE: GLD) has gained 11.9% on the year. This past week gold fell to its lowest price since late September before regaining its footing on Friday. The precious metal is in the process of wrapping up its eleventh consecutive year of gains.

Sector Stars

The pharmaceutical sector has been one of the strongest sectors of the market in 2011. The iShares Dow Jones U.S. Pharmaceutical Index Fund (NYSE: IHE) has gained 16.0% so far this year. Even with healthy advances, some of the major pharmaceutical stocks continue to trade at relatively inexpensive valuations.

The gains made by many of IHE’s top holdings have come despite a flurry of generic competition. It could be an uphill battle for many of these companies in 2012 as major patents are coming up on expiration. That being said, the sector was able to demonstrate its resilience in 2011 as it faced many of the very same headwinds.

One other sector that has been a cut above in 2011 has been the utilities space. The steady gains logged by companies in this sector has the Utilities SPDR ETF (NYSE: XLU) trading near its 52-week high. Shares of XLU have gained 10.2% year-to-date.

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