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What are we looking for?

Investors will soon be staring down the final quarter of the year. Let's take a look at which exchange-traded funds have offered the best performance in the nine months to Aug. 31.

The screen

We searched all categories for the 15 ETFs with the best performance for the nine months (note that includes December, 2012) to Aug. 31. We omitted leveraged ETFs, which use derivatives to amplify the long or short returns, as well short or "inverse" ETFs that take bets against the market.

What did we find?

The top performing ETF in the chart was helped by major Japanese automotive and technology companies.

The Canadian hedged iShares Japan Fundamental Index ETF gained 46.8 per cent in the nine months to Aug. 31.

"We continue to see opportunities with currency hedged positions in Japan. Encouraging monetary policy and a weaker yen provide a positive outlook for the Japanese economy," said Jeff Logan, head of iShares products at BlackRock Asset Management Canada Ltd.

"Japan now has a united government that we expect will allow Prime Minister [Shinzo] Abe to move ahead with bold reform. This should re-energize the private sector and improve productivity," he said.

The ETF's current top holding is Toyota Motor Corp., but other auto makers and their affiliated financing businesses also appear in the top 10, including Mitsubishi UFJ Financial Group Inc. and Honda Motor Co. Ltd.

But broad gains in Japanese markets and a softer yen weren't the only factors driving performance so far this year, and ETFs from other hot sectors this year are also represented in the chart – from health care to technology, U.S. banks to Chinese equities.

But there weren't too many veterans in the chart. Only three funds have been around long enough to reach the five-year mark, and only one, iShares Russell 2000 Index (CAD-hedged) ETF, had a positive return in that time frame.

The second-best performing fund for the nine months to Aug. 31 was the BMO Junior Gas Index ETF, up 30.7 per cent. It is currently weighted toward some high-performing stocks such as Gulfport Energy, which was up 54 per cent for the year to Aug. 31.


Editor's note: The print version and an earlier online version of this article and chart incorrectly stated that funds were ranked by their eight-month performance to Aug. 31. The funds were actually ranked by their nine-month performance to Aug. 31.

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