Home Builders Led ETFs During Aug. (Investor's Business Daily)

Last year's weakest sectors reversed course to become the strongest ETF performers in August. Precious metals and other commodities melted down as the dollar gained strength against other major currencies, which lessened the appeal of hard assets as a hedge on the greenback.

In contrast to last year, ETFs invested long overseas performed worse than those in the U.S. last month as they have all year. Thus, leveraged short ETFs tracking foreign markets were among top performers.

Sector Leaders And Laggards

SPDR S&P Homebuilders (AMEX: - ) led sectors with a 12.29% gain. It rebounded into positive territory year to date, up less than 1%, although housing data remain dismal.

Existing-home sales rose 3.1% in July from June to an annualized rate of 5 million units, the National Association of Realtors reported Aug. 25. The national median sales price dropped 7.1% from last year to $212,400, while inventories rose 3.9% from June levels to a record 4.67 million homes.

ETFs invested in consumer services, retailers, semiconductors, real estate investment trusts (REITs) and regional banks also showed strength.

"We're witnessing a classic case of sector rotation," Gary Gordon, president of Pacific Park Capital, wrote in his daily brief Wednesday. "Whether the consumer has been weakened, or whether home prices struggle to find a bottom, REITs and retail may be better than you think."

This year's leading sector, Biotech HOLDRS (AMEX: - ), let up 1.18% the past month but has returned 22% year to date. Stocks in the group gapped up on buyout offers.

Energy funds burned much of the year's gains last month despite Hurricane Gustav's threat to oil production in the Gulf of Mexico. IShares Silver (AMEX: - ) slid 23.74%, while SPDR Gold Trust (NYSEArca: - ) lost 9.29%. SPDR S&P Metals & Mining (AMEX: - ), Market Vectors Steel (AMEX: - ), Agribusiness (AMEX: - ) and Gold Miners (AMEX: - ) all stumbled by double digits.

This year's leading commodity index fund, PowerShares DB Energy (AMEX: - ), skidded 7.12% in August, cutting its year-to-date gain to 25.4%. The fund buys futures contracts of Brent crude oil, heating oil, light crude, natural gas and reformulated gasoline blendstock for oxygen blending gasoline (RBOB).

Valuations in these hard-hit sectors will eventually draw investors back, according to Gordon. "The world's still going to need its stuff."

No country posted positive returns in August or year to date. The benchmark iShares MSCI EAFE (NYSEArca: - ) fell 4.25% in August and was down 19.5% year to date. Its leveraged opposite, ProShares UltraShort MSCI EAFE (AMEX: - ), vaulted 8.66% last month. It was up 40% for the year.

The biggest loser, Market Vectors Russia (NYSEArca: - ), sank 14.88% and 26% for the month and this year. SPDR S&P Emerging Europe (AMEX: - ) sank 13.75%. It's shaved off 25.5% year to date. In the worst-hit country in Asia, iShares MSCI South Korea (NYSEArca: - ) plunged 13.42% for the month and 19% year to date.

Last year's hottest country, India, has turned into this year's worst performer. IPath MSCI India ETN (NYSEArca: - ) plummeted 44% year to date, after returning 86.4% for all of last year. Last year's second-place finisher, iShares MSCI Brazil (NYSEArca: - ), let up 9% year to date after popping 72.5% in 2007.

Claymore/BNY BRIC (AMEX: - ), which combines Brazil, Russia, India and China, sank 6.36% in August and 19.5% year to date after handing investors 67% last year.

The most widely traded ETF tracking developing countries, iShares MSCI Emerging Markets (NYSEArca: - ), dropped 6.32% for the month and 20% year to date. On the flip side, ProShares UltraShort MSCI Emerging Markets (AMEX: - ) gained 12.23% in August, and was up 27.33% for the year.

IShares MSCI Canada (NYSEArca: - ) leads foreign markets year to date with a mere 5.4% dip. It returned 27.3% last year.

ETF Industry Update

Broad U.S. market barometers SPDRsS&P 500 (AMEX: - ) and DIAMONDS Trust (AMEX: - ), which tracks the 30 names in the Dow industrials, both ended the month ahead 1.54%. The third most widely traded ETF, PowerShares QQQ (NasdaqGM: - ), a basket of the largest 100 stocks on the Nasdaq, returned 1.45%. These ETFs have lost 11.9%, 12.9% and 10%, respectively, year to date.

Total assets invested in U.S. exchange-traded products increased by $300 million to $597 billion during the month, according to preliminary data provided by Barclays Global Investors.

Providers launched five new products, taking the total number of ETFs to 815 by month's end. They filed 36 more with the SEC, which counts a total 559 in registration.