The popularity of exchange-traded funds (ETFs) continued to soar over the last year, despite the fact that most of them failed to make any money. The number of U.S.-listed equity ETFs grew 22 percent last year to 1,090, and the assets in the market swelled 4 percent to $930 billion, according to BlackRock. Yet only one third of those funds generated a positive return, according to a Bloomberg analysis.
Of course, that performance largely reflects the market itself. The Standard & Poor’s 500 slipped 0.04 percent to 1,257.60. In a year when few assets returned much of anything, one shouldn’t expect the typical passively managed ETF to do any better.
The vast majority of ETFs are passively managed funds that are pegged to indexes or comprise particular assets, such as gold. They trade on an exchange, like stocks do. They can be traded throughout the day, unlike mutual funds, which only can be traded at the end of the day.
Nearly half of the 50 best performing stocks of the year were in the health care sector — including Pharmasset, up nearly 500 percent, thanks to its acquisition by Gilead. Utilities stocks also did well in 2011, as investors looked for strong, stable dividend-yielding equities as an alternative to low-yielding credit.....