The Best ETF Developments of 2013

The past 12 months have been another banner year for exchange-traded funds (ETFs), but what were the best new developments on the ETF front in 2013? While there are plenty of positive development candidates to choose from during the year, I have narrowed down my personal list to what I think are the three best of the best developments on the ETF front over the past year — and here they are.

1) Hedged currency ETFs

There’s been a lot of upside in Asian equity markets this year, and perhaps the best example is Japan. That nation’s stock market skyrocketed in 2013, and though the upside in the space was stellar, it’s tough not to be concerned about the currency fluctuations with the yen.

To address currency concerns, a lot of investors have embraced ETFs that use currency hedge strategies along with equity index strategies. In Japan, that fund is the WisdomTree Japan Hedged Equity (DXJ). The fund is up nearly 38% during the past 12 months, a gain that crushed the S&P 500’s über-impressive 29% rise.

2) Floating-Rate Funds

Interest rates are on the march, and just last week the yield on the benchmark 10-Year Treasury note spiked more than 3%. This is a trend I expect to continue well into 2014, as the Fed actually begins tapering its bond purchases.

Taking advantage of the move higher in yields are senior loan and floating rate ETFs. Funds such as the PowerShares Senior Loan Portfolio (BKLN) have been the subject of a lot of speculation of late, as they tend to perform well in a rising rate environment. This is a development I expect to see continue well into next year and beyond.

3) Closed-End Fund ETFs

Closed-end funds have been around for some time, but in the second half of the year we’ve seen renewed attention given to closed-end fund ETFs such as the PowerShares CEF Income Composite Portfolio (PCEF).

This fund is essentially a fund of closed-end funds, and it is designed to take advantage of the nature of closed-end funds, which trade on supply and demand and therefore create a premium or discount to their net-asset value. The chart here shows the recent surge in PCEF above its 50- and 200-day moving averages, a trend we currently are profiting from in my Successful Investing advisory service.

Finally, while these three developments in ETF-land are at the top of my list, they are by no means the only positives for ETFs in 2013. Moreover, 2014 is setting up to be another banner year for this asset class, and over the next 12 months we’ll continue to bring you more info on the best sectors to check out going forward.