The Best Investments Of 2012

There were undoubtedly a few major stories that dominated financial markets in 2012.

The formation of a recovery in U.S. housing is definitely one of them. Another is ECB President Mario Draghi's proclamations to "do whatever it takes the save the euro," which has calmed markets plagued in recent years by the eurozone sovereign debt crisis.

While housing and Draghi were major factors for investors in 2012, they weren't the only developments that drove returns in financial markets this year.

Best government bonds: Portugal

YTD return: 51.6 percent (as of December 6)

Story: The story of the year in financial markets has arguably been the "Draghi effect." When ECB President Mario Draghi declared in July that the ECB would "do whatever it takes to save the euro" and subsequently followed through with the introduction of the central bank's OMT bond market intervention program a month later, yields on sovereign debt dropped precipitously.

Business Insider called the drop in Italian bond yields the "Most Important Chart of 2012," given that economy's significance in the euro crisis. However, Portuguese debt, though out of the spotlight, ultimately performed much better than Italian or Spanish bonds in 2012.

Source: BofA Merrill Lynch, Business Insider

Best currency: Hungarian forint (against the U.S. dollar)

YTD return: 11.1 percent

Story: The forint had a rough year in 2011 after Hungarian Prime Minister Viktor Orban nationalized pension funds and forced the country's banks to take writedowns on loans, triggering a credit rating downgrade.

However, the forint made a big comeback in 2012 as major world central banks launched new monetary easing programs and investors extended further into riskier assets in search of yield, which Hungarian bonds could provide.

Source: Barchart.com, Bloomberg

Best hard commodity: Lumber

YTD return: 48.4 percent

Story: Lumber futures staged an incredible run beginning in early October. Citi strategist Tobias Levkovich cited Hurricane Sandy, which hit the Eastern seaboard of the United States in late October, as partly responsible for soaring demand for the commodity.

Deutsche Bank commodity analysts note that prices were undoubtedly helped by the burgeoning United States housing recovery that took off in mid-2012.

Source: FINVIZ.com, Citi, Deutsche Bank

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