Investors lost $94.14 billion in exchange-traded funds in October, the worst returns in the industry's short history. Broad diversification actually hampered returns, as ETFs representing foreign bourses and commodities brought the total average decline to 17.4%, worse than the 16.5% decline of SPDR S&P 500 Trust, the investable form of the S&P 500 Index, which is the largest ETF.

Forget about hiding from this bear market—it's taking down everything from Grandmother's gold to Brazil nuts. If you weren't short, you lost your shorts.

The 17.4% decline of the ETF 50 Index™, the industry's leading measure of ETF performance, brought its losses this year to 35.0%. From its peak one year ago, the ETF 50 has plunged 39.1%, compared with a 38.0% drop in the S&P 500.

ProShares UltraShort Financials (SKF), which only recently climbed into the top 50 ETFs by assets, soared 124.4% in October. The inverse two-times leveraged ETF skirts federal rules intended to limit shorting of financial stocks.

Four other ETFs that have also enjoyed substantial inflows, as investors have sought safe havens couldn't escape the month's carnage. iShares Lehman 7-10 Year Treasury (IEF) slipped 1.2%. Health Care Select SPDR (XLV) was off 11.5%. PowerShares Water Resources (PHO) slumped 25.3%, and Vanguard REIT Index ETF (VNQ) tumbled 31.7%.

Among the biggest losers were iShares MSCI Emerging Markets Index (EEM), the third-largest ETF, down 25.6%; SPDR Gold Shares (GLD), behind 16.1%; iShares MSCI Brazil Index (EWZ), off 33.1%; and Oil Services HOLDRS (OIH), down 32.8%.

The only ETF among the 50 largest to remain positive in October was iShares Lehman 1-3 Year Treasury (SHY), which eked out a 0.8% advance.

All but four of the other 49 suffered double-digit declines.

The ETF 50 Index™ represents the price-only asset-weighted performance of the 50 largest exchange-traded funds. The index consists of a broadly diversified universe of funds representing domestic and foreign stocks, bonds and commodities, and is a better indicator of actual investor returns than indices tied to particular markets.

The ETF 50 Index™, the industry's leading measure of ETF performance, slipped 1.4% in August, dragged down by foreign equities and a rout in gold as the U.S. dollar rallied sharply. 

SPDR S&P 500 Trust (SPY), the largest exchange-traded fund with assets of $80.20 billion, eked out a gain of 1.5% in the month. It was only the fourth time in the last 12 months the benchmark of large-capitalization U.S. stocks outperformed the ETF 50 Index™, but it was also the second in a row.

The emerging story this summer is the relative strength of the domestic economy versus the rest of the world, which has sent the U.S. dollar sharply higher. That's bad for foreign stocks and gold bugs, and very, very good for the most economically sensitive domestic stocks, the small-cap value group.

Domestic small caps asserted strong leadership in the month, with iShares Russell 2000 Index (IWM) spurting 3.6%. iShares Russell 2000 Value Index (IWN) surged 5.2%, substantially more than iShares Russell 2000 Growth Index (IWO), which gained 3.2%.

Small companies get a greater percentage of revenue and earnings from domestic operations than multinationals. Beaten-down value stocks are most sensitive to the business cycle.

Meanwhile the second- and third-largest ETFs, iShares MSCI EAFE Index (EFA) and iShares MSCI Emerging Markets Index (EEM), sank 4.2% and 6.3%, respectively, in August.

SPDR Gold Shares (GLD), a traditional dollar hedge, tumbled 9.3%. iShares Silver Trust (SLV) collapsed 23.7%.

PowerShares DB US Dollar Bullish (UUP), which with assets of $500 million is not among the 50 largest ETFs, spurted 5.3% in August.

The ETF 50 Index™ has crumbled 10.6% in the last three months, 11.0% so far in 2008 and 12.6% in the last 12 months.

The ETF 50 Index™ represents the price-only asset-weighted performance of the 50 largest exchange-traded funds. The index consists of a broadly diversified universe of funds representing domestic and foreign stocks, bonds and commodities, and is a better indicator of actual investor returns than indices tied to particular markets.

July Skims Another 2.0% from Investors

The ETF 50 Index™, the industry's leading measure of ETF performance, fell 2.0% in July, dragged down by a sharp fall in energy and foreign funds, notably emerging markets.

Markets are chaotic; investors are panicked by inflation, which shot up to 5.0% in the latest government report. With all this uncertainty about domestic politics and global economic conditions, money can't find anyplace to hide.

The largest ETF, SPDR S&P 500 Trust (SPY), slipped only 0.9% in July. But Nos. 2 and 3, iShares MSCI EAFE Index (EFA) and iShares MSCI Emerging Markets Index (EEM), skidded 3.3% and 5.5%, respectively. No. 4 PowerShares QQQ (QQQQ), representing the tech-heavy Nasdaq 100 Index, actually eked out a 0.6% gain. No. 5 SPDR Gold Shares (GLD) declined 1.4%.

SPDR S&P Energy (XLE) tumbled 15.7% as oil prices retreated from their historic highs. Other commodities also sank, with PowerShares Commodity Tracking Index (DBC) off 10.8% and PowerShares DB Agriculture down 9.9%.

Domestic small-cap stocks proved surprisingly resilient, with iShares Russell 2000 Index (IWM) ahead 3.3%. iShares Russell 2000 Value (IWN) spurted 4.0%. iShares Lehman Aggregate Bond (AGG) was unchanged.

Beleaguered financial stocks rallied, with SPDR S&P Financial Sector (XLF) ahead 6.9%

The ETF 50 Index™ represents the price-only asset-weighted price performance of the 50 largest exchange-traded funds. The index consists of a broadly diversified universe of funds representing domestic and foreign stocks, bonds, commodities and real estate, and is a better indicator of actual investor returns than indices tied to particular markets.

Stocks Melt in Oil's Heat

The ETF 50 Index™, the industry's leading measure of ETF performance, tumbled 7.5% in June, its steepest decline since the benchmark was introduced in January, 2007. It brought returns for the average ETF investor down 9.5% in the first half of 2008.

With traders throwing oil on the inflation fire, financial assets are going up in flames. Wouldn't you know Congress is trying to crack down on commodities. They're the only thing making money.

The most widely owned ETF, SPDR S&P 500 (SPY), skidded 8.8% in June. It's two-times inverse leveraged twin, ProShares UltraShort S&P 500 (SDS), leaped 17.8%.

Domestic markets were dragged down by the financial sector, with SPDR S&P Financial Sector Index (XLF) down 18.7%. Commercial real estate stocks fell to their lowest level since April 2004, with iShares Cohen & Steers Realty Majors (ICF) off 11.8%.

Bonds as well as stocks declined, with iShares Lehman Aggregate Bond Index (AGG) down 0.5%. Treasury Inflation-Protected Securites, however, performed their role with iShares Lehman TIPS Bond (TIP) ahead 1.0%.

Foreign bourses fared even worse, with iShares MSCI EAFE Index (EFA) down 10.5% and iShares MSCI Emerging Markets Index (EEM) off 10.3%. The epicenter of the overseas damage was Europe , with iShares EMU (EZU), which tracks the euro region, tumbling 14.4%.

But China and its economic satellites fared little better. iShares FTSE/Xinhua China 25 Index (FXI) was down 14.0% and iShares Brazil off 10.0%.

Commodities, a traditional inflation haven, surged higher. PowerShares Commodity Index Tracking ETF (DBC) spurted 10.5%, and PowerShares DB Agriculture (DBA) shot up 15.2%.

The ETF 50 Index™ represents the price-only asset-weighted price performance of the 50 largest exchange-traded funds. The index consists of a broadly diversified universe of funds representing domestic and foreign stocks, bonds, commodities and real estate, and is a better indicator of actual investor returns than indices tied to particular markets.

Earlier this month, Vanguard Group declared a 2-for-1 split of Vanguard Emerging Markets (VWO), Vanguard Total Stock Market ETF (VTI) and Vanguard Extended Market ETF (VXF) to bring down their prices. (The record date was June 13, and the shares began trading at their split-adjusted price June 18.) Because splits can cause confusion for some investors, I'd like to explain how they work and how your holdings will be affected when a split occurs.

Most ETFs, like most stocks, trade for prices below $100 to attract individual investors. When they breach that barrier, they usually split. Before the recent Vanguard split, for instance, VWO traded above that price.

Among stock investors, a split is applauded as a sign of success, and novice investors are routinely suckered into buying ahead of splits because they think something magic is about to happen. In fact, it's simply an accounting mechanism. If a $100 stock splits 2-for-1, investors are left with twice as many shares, each worth half as much.

Warren Buffett has never split the shares of Berkshire Hathaway, and the A shares (BRK.A) have traded recently around $130,000. But under shareholder pressure, he did allow the creation of Class B shares (BRK.B), worth 1/30th of a Class A share. Even so, their recent price of more than $4,000 limits their popularity.

Some 58 ETFs, or 7.9% of the total outstanding, trade for more than $100. Except for bookkeeping purposes, however, the share price of an exchange-traded fund, as for a mutual fund, is immaterial. It's simply the value of its holdings divided by the number of shares outstanding.

But even mutual funds strive to keep their net asset value per share below $100. Only 0.3% of mutual funds have higher per-share prices, according to Morningstar.

Just remember to record the change in your files for any ETFs you own that split their shares, or you'll suffer a phantom loss that's bound to be upsetting.

A diversified portfolio of exchange-traded funds continued to outrace the beleaguered market in May, with the ETF 50 Index™, the industry's leading measure of ETF performance, rising 1.8%.

The investable form of the S&P 500 Index, SPDR S&P 500 Trust (SPY), managed a 1.5% gain in the month, topping foreign developed markets as the U.S. dollar staged a small rally. iShares MSCI EAFE Index ETF (EFA) eked out a 1.2% advance.

The United States is where the money is now, and that's where ETF investors are reaping the biggest rewards. Oil and U.S. stocks have been in a tug of war for months, and U.S. stocks are starting to win.

Domestic markets showed their greatest strength at the most economically sensitive end of the spectrum, with PowerShares QQQQ (QQQ), representing the Nasdaq 100, surging 5.9%, and iShares Russell 2000 Index (IWM), representing small-capitalization stocks, ahead 4.6%.

By contrast, iShares MSCI Emerging Markets Index (EEM) gained only 3.2% in the month.

But the domestic rally is riddled with troublesome holes. The group that led stocks into a bear market, represented by Financial Select Sector SPDR (XLF), tumbled 6.6% in May as losses in that sector continued to spread.

The month's biggest gainer was iShares MSCI Brazil Index (EWX), which roared ahead 9.9%, buoyed by reports of the largest oil find in at least a decade off its shores.

Energy Select Sector SPDR (XLE) spurted 5.2%.

The ETF 50 Index™ has advanced 5.2% in the last three months but remains down 2.2% since May 2007. The 500 Spider is up 4.9% in three months and down 8.5% in the last 12.

The ETF 50 Index™ represents the price-only asset-weighted price performance of the 50 largest exchange-traded funds, which account for nearly 75% of the industry's total assets. The index consists of a broadly diversified universe of funds representing domestic and foreign stocks, bonds and commodities, and is a better indicator of actual investor returns than indices tied to particular markets.