Although the third quarter ended on a downbeat, it was the best quarter in the markets since 1998. A number of exchange traded funds (ETFs) also exhibited some impressive gains. Where were the hot spots?

Airline Industry. Total airline traffic is still declining, but at a slower rate than it was. Additionally, the drop in freight traffic is declining at a slower rate. Some analysts expect the industry to start taking off in 2010.

• Claymore/NYSE Arca Airline ETF (NYSE: FAA): up 51% in the third quarter

Brazil. Moody’s Investor Services is eyeing Brazil for a possible upgrade to investment-grade. Moody’s would join both Fitch and Standard & Poor’s in giving Brazil an investment-grade rating. A better rating will improved investor sentiment and a boost in the financial sector.

• Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF): up 44.7% in the third  quarter

Commercial Real Estate. The real estate sector has been thoroughly beaten, but some analysts out there feel that the sector has seen the worst, and 2010 could mark a period of improvement. Some pension funds are also beginning to jump into the sector.

• iShares FTSE NAREIT Industrial/Office Complex (NYSEArca: FIO): up 39.9% in the third quarter

Mid-Caps. Mid-cap stocks and companies have done well as the broader market has recovered: in the last six months, they’re up about 45%. Only small-caps have been performing better – small-caps historically outperform the markets after a recovery.

• Rydex S&P Midcap 400 Pure Value (NYSEArca: RFV): up 39% in the third quarter

Insurance Industry. Fed by optimism about the prospect of improving conditions at the insurer, some insurance companies can bounce back higher from prior-year losses while others may see true growth. Property and causality insurers have been spared by a calm hurricane season so far, and most insurers benefited from a recovering financial market.

• SPDR KBW Insurance (NYSEArca: KIE): up 36.7% in the third quarter

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

Max Chen contributed to this article.

Tags: Airlines, Brazil, BRF, Commercial Real Estate, Emerging Markets, FAA, Financial, FIO, Global ETFs, Insurance, KIE, Latin America, Mid-Cap, REITs, RFV, Sector ETFs, Small-Cap