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ETF Sector Watch - Scary Trends In The Making

ETF Sector Watch - Scary Trends In The Making
By Simon Maierhofer
July 18, 2008

One look at the year-to-date leaders and laggards reveals a not so subtle theme. Everything but energy and commodities is in the red. The United States 12-Month Oil Fund (Ticker: USO) and the United States Natural Gas Fund (Ticker: UNG) lead the group with nearly 50% gains.

All top 10 YTD-leaders come with courtesy of the energy, or to be specific oil and gas sector. Of course, the broader ETFs like PowerShares Commodity (Ticker: DBC) and iShares Commodity (Ticker: GSG) are heavily weighted in oil as well.

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Curiously, the S&P 500 energy related stocks, represented by the Energy Select Sector SPDRs (Ticker: XLE) are essentially flat for the year. The soaring oil prices have not translated into higher stock prices for Exxon Mobile (XOM), down 14% YTD and Chevron (CVX), down 8% YTD, which account for 27% of the Energy SPDRs. There is a sneaking suspicion that not even energy related profits show up in US balance sheets but are largely contained to oil-producing nations.

Top Ten Year-To-Date Leaders:

Name

Ticker

YTD

United States 12-Month Oil Fund

USL

49.6%

United States Natural Gas Fund

UNG

48.3%

iPath DJ-AIG Natural Gas Index ETN

GAZ

48.3%

PowerShares DB Oil Fund

DBO

47.3%

United States Oil Fund ETF

USO

44.2%

ELEMENTS Rogers International Energy ETN

RJN

44.2%

iPath DJ-AIG Energy Total Return Sub-Index ETN

JJE

43.6%

iPath S&P GSCI Crude Oil Total Return Index ETN

OIL

43.5%

PowerShares DB Commodity Index Tracking Fund

DBC

38.8%

iShares S&P GSCI Commodity-Indexed Trust

GSG

34.7%


The United States are not alone in their struggles. The only two countries (represented by ETFs) that are up for the entire year are
Brazil (Ticker: EWZ) and Russia (Ticker: RSX).  iShares Israel (Ticker: EIS) and iShares Turkey
(Ticker: TUR) are up marginally since their launch in March.

The B2B Internet HOLDRS (Ticker: BHH), which consists of only two (right, that’s 2) components is up 16.7%. HOLDRS are fixed baskets of stocks, which never change and can therefore morph into an extremely concentrated and dangerous vehicle.

Biotech has been a very rare pocket of strength and should continue as such. Biotech has a strong seasonality that lasts from July through March, with a 5-year average return of 15%. 

Top Year-To-Date Leaders (equities only, we could only find 9):
 

Name

Ticker

YTD

B2B Internet HOLDRS

BHH

16.7%

Biotech HOLDRS

BBH

10.8%

iShares Dow Jones U.S. Aerospace & Defense Index Fund

ITA

8.2%

HealthShares Neuroscience ETF

HHN

6.8%

SPDRs S&P Biotech ETF

XBI

6.0%

iShares FTSE NAREIT Residential Index Fund

REZ

4.0%

iShares MSCI Brazil Index Fund

EWZ

3.3%

iShares Dow Jones U.S. Basic Materials Sector

IYM

2.2%

Russia ETF

RSX

0.2%

What is happening in India? The 19% loss in the iShares FXI Xinhua (Ticker: FXI) pales in comparison to the iPath MSCI India ETN (Ticker: INP) drop of nearly 50%.

 

Financials and real estate have become familiar sightings in the laggards section, with a presence of 7 out of 10. Obviously Europe is not de-coupled from the states. On Tuesday, Spain suffered its largest-ever business failure as Martinsa Fadesa SA, a construction group with $18 billion in assets filed for bankruptcy. The ripple effect is felt across the Euro-zone and reflected in the 45% drop of the First Trust DJ STOXX Select Dividend 30 Fund (Ticker: FDD). 

 

The Claymore/AlphaShares China Real Estate ETF (Ticker: TAO) was launched with great fanfare and has nothing but disappointed. The expected pre-Olympic boom turned out to be a no-show.   

Top 10 Year-To-Date Laggards:

Name

Ticker

YTD

iPath MSCI India Index ETN

INP

- 47.1%

First Trust DJ STOXX Select Dividend 30 Index Fund

FDD

- 45.0%

iShares Dow Jones U.S. Broker-Dealers Index Fund

IAI

- 38.7%

KBW Capital Markets ETF

KCE

- 36.5%

KBW Bank ETF

KBE

- 36.4%

iShares FTSE NAREIT Mortgage REITs Index Fund

REM

- 35.2%

iShares DJ U.S. Financial Services Index Fund

IYG

- 35.0%

Claymore/Clear Global Exchanges, Brokers & Asset Managers Index ETF

EXB

- 34.9%

Financial Select Sector SPDR Fund

XLF

- 32.9%

Claymore/AlphaShares China Real Estate ETF

TAO

- 32.7%

 Data as of 7-16-08

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