With the Federal Reserve's second round of quantitative easing set to expire by early this month, countless investors busied themselves lately looking for ways to cope with a declining-dollar in a slow recovery. Many ended up putting their cash and faith in ETFs concentrating on Northern European, as well as those focused on the real estate sector.

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U.S. REIT ETFs were up 14% through May, as the group benefited from stronger fundamentals in the apartment REIT business. "The economy has remained on the weaker side, and fundamentals for REITS have been in very good shape," says Tom Anderson, global head of ETF strategy and research at State Street Global Advisors. "There is less demand for homes, more demand for rental properties and rents have gone up."

Investors also liked (maybe loved) Canadian real estate. The iShares S&P TSX Capped REIT Index Fund (XRE on the Toronto Stock Exchange) was up 23.3%. That performance paralleled the sentiment for U.S. real estate investments but may not last, says Abraham Bailin, an ETF analyst at Morningstar.

European equities were also a big favorite, partly because of a big sell-off in emerging market ETFs and the effect of a stronger euro vs. the U.S. dollar. The SPDR Euro Stoxx 50 (FEZ) was up 13% year-to-date. About 67% of the fund's holdings are weighted toward Germany, France and other Northern European economies, which look stronger than their southern neighbors, Anderson says.

Commodity ETFs are benefiting from some of that flight to quality, especially as investors look for ways to hedge against currency debasement, says Will Rhind, managing director of ETF Securities. "Commodity funds are one of the best examples of hard assets. They are being used to protect against this phenomenon," Rhind says.

Commodity ETF investors fell into three groups. Many economic pessimists bought silver and gold ETFs, pushing the ETFs Silver Trust (SIVR) up 25.4% and the ETFS Physical Swiss Gold Shares (SGOL) up 8.5%. Investors also allocated money to precious metals as a way to diversify their portfolio with exposure to hard assets. To that end, the ETFS Physical Precious Metals Basket Shares (GLTR) was up 13.2%.

Many emerging market ETFs, especially single-country funds, couldn't hold their gains, Anderson says. PowerShares India (PIN) fell 10%.



Bond funds mostly performed well as confidence in European equities also covered fixed income. The SPDR Barclays Capital International Treasury Bond ETF (BWX) rose 5.8%.

Municipals bonds also participated in the fixed-income gains. The SPDR Nuveen Barclays Capital California Municipal Bond (CXA) fund was up 6.5%. "That was a little bit of a surprise to many people because, at the end of 2010 and beginning of 2011, there was so much speculation that there would be trouble in the municipal bond market," Anderson said.

Looking at cash flows, investors pushed into developed international markets. The iShares MSCI Japan Index fund (EWJ) took in about $3 billion through May, as investors bet on a flurry of rebuilding in the wake of the March 11 earthquake and tsunami. Year- to-date through May, the fund is off 5.8%. In May alone, the fund lost 2.4%.

European funds again benefited from strong investor confidence, especially the iShares MSCI Germany Index Fund (EWG), which took in about $1.8 billion. "Germany is seen as the growth engine of Europe," Anderson says.

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