BZQ ProShares UltraShort MSCI Brazil Capped

2011 has been a pretty rough year for many investors as a number of issues have plagued the markets throughout the time period. First, geopolitical concerns rocked the Middle East while a devastating earthquake brought much of the world’s third largest economy, Japan, to a standstill. Following these crises, debt concerns in both the U.S. and Europe cast a shadow over investor confidence heading into the fall. Meanwhile emerging markets, thanks in part to easy money policies from the Fed and the ECB, have been battling with inflationary pressures all year, leaving no region of the equity world completely unscathed by the onslaught of events that took place in 2011.

However, for investors who were wise enough to take a closer look at some short leveraged ETFs and ETNs, this year has produced some pretty handsome returns. While it is important to remember that most leveraged products are only designed to match the performance of an index over a single trading session, making long-term holdings of these securities likely to deviate from an underlying index, some gains in the space have been pretty incredible nonetheless. Below, we take a closer look at three of the best performing leveraged ETFs so far this year. Hopefully, this list will give investors some ideas as to what was among the worst performing sectors in the year or what may be poised for a bounce back in 2012:

ProShares UltraShort MSCI Brazil Fund (BZQ)- up 27.4% YTD

This ProShares product tracks twice the inverse daily performance of the MSCI Brazil Index giving investors bear exposure to Brazilian equities. Securities in this important South American country have been hammered by weaker commodity prices, a decline in risk tolerance, and questionable government policies. In fact, inflation, which is a significant concern for many in the country, has been put on the backburner by the national government which hopes to stoke consumption and growth instead. Thanks to these concerns, those who have held on to this daily resetting product have done pretty well and especially good compared to those who bought a more traditional Brazil ETF instead.

iPath Short Enhanced MSCI Emerging Markets Index ETN (EMSA)- up 38.1% YTD

EMSA is an Exchange Traded Note that gives investors exposure to -200% of the MSCI Emerging Markets Index, the same benchmark that ultra-popular funds such as EEM follow. This gives the fund heavy exposure to large and giant cap securities with a tilt towards equities from the Greater China area. Thanks to issues over a property bubble and a slowdown in Western markets, key exporting nations such as Taiwan and China have been hit extremely hard in recent months helping to push up prices for short ETNs such as EMSA in the process.  Additionally, investors should note that the fund is heavy in financial exposure as well, suggesting that as concerns have built up in both Europe and America over the banking sector, emerging markets haven’t exactly gone unscathed in the process. This has made this ETN a great pick over the course of 2011 and one of the best performers in the space on the year.

Direxion Daily India Bear 2x Shares (INDZ)- up 51.2% YTD

This fund, which tracks an inverse 2x version of the Indus India Index, has been the best leveraged performer by a wide margin in 2011. The benchmark that INDZ follows consists of about 50 companies based in India that are among the largest firms in the nation by market capitalization. While many might assume that this makes the fund a lower volatility play, this has not been the case so far in 2011 by a long shot.  Although the fund may have seen some degree of weakness to start the year, the summer was a great time to be in this fund as inflationary pressures finally began to drag down the Indian economy and impact consumption patterns in the nation. Food price inflation was especially a problem thanks to the large amount of very poor people in the country and has been forced to hike rates more than a dozen times in the past 20 months. This has greatly impacted stock prices in the country and has allowed INDZ to capitalize off of these negative trends and become a star performer as of late.

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