The market is showing signs of recovery—and ETFs are no exception. Early cyclical sectors have shot up alongside the Dow this year, as defensive sectors—the standouts of last year's crisis—fell by the wayside.

For tech ETFs, the story is typical of a stabilizing economy. The sector is up more than 31% year-to-date through Aug. 31, an exceptional performance given its 48% drop in 2008. "Throughout the crisis, corporations curtailed their IT budgets and spending, a huge driver for the tech space. So their inventory was down," explains John Gabriel, ETF analyst at Morningstar. "Now companies are increasing production, trying to meet the growing demand."

Commodity-based ETFs have also had a notable performance this year, with some coal-based ETFs up a remarkable 80% YTD through Aug. 31. This is a direct effect of the global recovery, says Ed McRedmond, senior vice president of portfolio strategies at Invesco PowerShares, who attributes much of coal's surge this year to its biggest customer. "Most of China's energy is generated through coal, so they're buying up a lot of it."

LEADING THE PACK

To say things are going well in China isan understatement; some experts are calling it a bubble. After a stimulus package and 8% GDP growth in the second quarter, Chinese ETFs led emerging markets to a more than 50% gain this year. The top-performing equity ETF, the Claymore/AlphaShares China Small Cap, returned 68.5%. And while they haven't posted the returns of their emerging neighbors, developed countries are also faring well this year, up more than 23%.

After a very rough 2008, energy has crawled back from the trough, up 8.5% through Aug. 31. This is largely due to crude oil prices, which rose $40 to $70 per barrel from the beginning of this year, pushing the sector up 25% in the last three months, Gabriel says. Clean energy ETFs have also seen a surge. "There is a big push toward clean energy and clean energy jobs in the stimulus package, and people assume that that money will filter down into those companies' bottom lines," McRedmond says.

IGNORANCE IS NOT BLISS

Healthcare, a stalwart in the meltdown, has also been affected by the administration's actions—or lack thereof. As Congress battles over what a reform plan should look like, the uncertainty of how things might turn out has spooked investors away from the sector, which is up a measly 9% so far this year.

ETFs were the vehicle of choice last year, and it seems that their redeeming qualities—liquidity and tax efficiency, to name a few—have stuck with investors as they come out on the other side. Flow levels are below where they were during the meltdown, though; August total inflows were $7.5 billion, bringing flows to $50 billion for the year. Flows in 2008 were roughly $180 billion.

The one sector that hasn't seen as much action lately is leveraged and inverse ETFs. These risky funds have come under intense scrutiny in the past few months as FINRA and the SEC issued warnings about their use and myriad broker-dealers put out restrictions or outright bans. July and August saw outflows in these funds for the first time in more than a year.

Things are certainly looking up in the market, and ETFs seem to be how investors are taking advantage of it. But broad uncertainty is keeping investors on their toes. "Now the market is trying to discount things using probability," Gabriel says. "But the uncertainty isn't only a negative. If the market thinks the government option is going to be a rational competitor, it will drive prices up. Once that uncertainty is removed from the market, the stock could rally."