With 710 ETFs holding $582 billion in assets in the market today, their imprint on the investment world is certain. Institutional and individual investors alike are increasingly using ETFs both for long-term holdings and as a substitute for single stocks.

In fact, the top 100 ETFs account for 85% of all ETF assets, says Dan Dolan, director of wealth management strategies at Select Sector SPDRS. But for the second quarter in a row, it is the nearly 80 leveraged and inverse ETFs that have given market investors hope this year, providing low-cost protection against a struggling economy and a tight credit market.

Asset flows into these inverse ETFs-such as those offered by ProShares-are up 134% through the end of August. "It's ironic, because five years ago people viewed this type of investing as a risky thing," Dolan says. "Now it's gone from risky to a risk reducer, and it's all about minimizing the single-stock exposure."

Dipping into the Red

It has become a question of who can stay farthest out of the red, as nearly no sector sits comfortably in positive territory. The pain-stricken financial sector continues to weigh down the market, while the usual defensive sectors, such as consumer staples and healthcare, remain havens.

Through Aug. 15, Select Sector SPDR Consumer Staples was up 1% and Rydex Equal Weight Healthcare was down 2.1%-impressive performance compared with the 47.4% tumble Ultra Financial PowerShares has taken in 2008. U.S. large-value ETFs are down 12.7% as of Aug. 15-owing, in large part, to their liberal exposure to financials, according to Morningstar ETF Analyst Paul Justice.

Global Impact

The impact of these sectors' performances is beginning to spread far beyond America's borders, says Diane Hsiung, senior portfolio manager at Barclay's Global Investors. Virtually every country's overall performance is negative.

With 30% of Canada's market in energy and 19% in materials, it is high commodity prices that allow the MCI Canada ETF to return an impressive -3.1%. Switzerland is down 8.1%—despite its negative return, Switzerland is the third strongest performing developed market this year thanks to healthcare companies like Novartis and Roche. (All performance figures are year-to-date through Aug. 15.)

The troubled financial sector contributed to Ireland's poor showing (-34.6%), as well as Belgium's (-28.5%). "For Japan (-8.8%), it was actually the consumer discretionary sector that was responsible," Hsiung says. "The biggest contributors to the underperformance were Toyota Motor and Sony, reflecting the global slowdown at large and in the United States, since Japan is very export-centric."

A dip in commodity prices this summer brought much-awaited relief from energy prices' upward hike, but was not enough to keep oil and gas off the list of top performers. PowerShares DB Oil was up 25.31% year-to-date; U.S. Oil was up 21.36%. But amid falling prices, iShares Global Energy saw net outflows of $101 million so far this year. Has the energy bubble begun to burst?

"It looks like it's starting to stabilize again," Dolan says. "The Energy Select SPDR was over $90 per share early this year, and then in the end of the first half it came down to $70. Since then, it's back up to $80, so it looks like money is returning to the sector once again."