Sector ETFs

2/21/2011


Before you bet on a sector fund, take a look under the hood. Sector-specific funds carry more risk than diversified funds, so investors should look beyond past performance and consider the attractiveness of a sector and a fund's underlying holdings — two areas our Quadrix® rating system can quantify. 

The table below lists nine standout sector exchange-traded funds (ETFs). All nine boast weighted-average Overall and Value scores above the average for their sectors. In addition, all nine have a very low percentage of assets in stocks with Overall scores below 20.

STANDOUT SECTOR ETFs
12-Mo.
Price
Change
(%)
Average Quadrix
-------Scores
-------
% of Stocks with
-------- Quadrix Overall --------
Exchange-Traded Fund
(Price; Ticker)
Value
Overall
Above 80
(%)
Above 90
(%)
Below
20
(%)
SPDR S&P Retail ($49; XRT)
36.8
65
70
37
15
4
Consumer Discretionary
33.2
58
58
22
7
9
PowerShares Dyna. Con.
Staples ($29; PSL)
17.2
68
64
19
7
0
Consumer Staples
10.6
64
57
13
8
1
iShares Dow Jones U.S.
Energy ($43; IYE)
30.9
60
82
66
49
1
Energy
31.6
48
57
27
9
8
PowerShares Dynamic
Fin'l ($20; PFI)
21.3
78
77
53
28
0
Financials
20.0
55
48
17
7
14
Rydex S&P Equal Weight
Health ($66; RYH)
17.1
71
74
48
26
2
Health Care
6.6
59
62
26
10
8
Industrial Select Sector
SPDR ($38; XLI)
33.5
54
68
34
11
0
Industrials
33.7
49
56
18
5
9
iShares Dow Jones U.S.
Materials ($80; IYM)
36.4
57
72
37
29
2
Materials
29.9
54
55
18
11
10
iShares Dow Jones U.S.
Tech ($69; IYW)
26.2
64
86
75
67
1
Technology
25.6
50
64
37
22
9
First Trust Utilities AlphaDEX
($17; FXU)
16.9
80
62
14
7
0
Utilities
10.9
74
53
6
0
0
Note: Quadrix scores are percentile ranks, with 100 the best.

The technology sector has the best average Overall score (64) and the highest percentages of stocks with scores above 80 (37%) and 90 (22%). iShares Dow Jones U.S. Tech ($69; IYW) boasts even better scores, including a weighted-average Overall score of 86. The portfolio holds 166 stocks, anchored by Quadrix standouts Apple ($360; AAPL), Microsoft ($27; MSFT), and IBM ($163; IBM). The fund, up 26% over the past year, has 75% of its assets in stocks that score above 80.

The S&P 1500 Consumer Discretionary Sector index has rallied 33% over the past 12 months. SPDR S&P Retail ($49; XRT) has gained 37%, spurred by outsized exposure to apparel (32% of assets), specialty stores (18%), and automotive (11%). The fund earns a weighted-average Overall score of 70, and 37% of assets are in stocks with Overall scores above 80.

Quadrix scores for the energy sector have moved higher in recent months, reflecting the impact of higher energy prices on company fundamentals. iShares Dow Jones U.S. Energy ($43; IYE), with 91 stocks, earns a weighted-average Overall score of 82, versus 57 for its sector. The Value score of 60 outstrips the sector average of 48. Nearly one-half of the fund's assets are in stocks with Overall scores above 90, while only 1% of assets score below 20. Forecasts favorite Exxon Mobil ($83; XOM), with an Overall score of 96, is the fund's largest holding at 24% of assets. The fund has rallied 31% over the past year.

 

FORECASTS FUND RECOMMENDATIONS
Through Feb. 15, our recommended Growth Portfolio has returned 3.9% for the year, versus 5.2% for its benchmark portfolio. The Conservative Portfolio has returned 3.5%, versus 3.7% for its benchmark.
— Year-to-Date —
—– % of Portfolio –—
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating
American Century Heritage
($23; TWHIX)
7.4
B
9
10
75
Buffalo Growth
($26; BUFGX)
4.8
E
9
10
97
Dreyfus MidCap Index
($30; PESPX)
7.0
A
0
0
95
Dreyfus Small Cap Stock Index
($21; DISSX)
4.2
D
0
0
57
Heartland Select Value
($31; HRSVX)
5.0
D
7
10
83
Heartland Value Plus
($31; HRVIX)
3.4
D
9
10
98
T. Rowe Price Int'l Discovery
($44; PRIDX)
0.3
D
5
6
40
T. Rowe Price New Horizons
($36; PRNHX)
6.2
B
9
10
97
Vanguard 500 Index
($123; VFINX)
5.8
B
5
5
63
Vanguard Dividend Growth
($15; VDIGX)
4.1
E
8
9
94
Vanguard Emerging Mkts.
Stock Indx. ($29; VEIEX)
(4.2)
C
0
5
95
Vanguard GNMA ($11; VFIIX)
(0.4)
B
4
0
94
Vanguard Inter.-Term Tax
Exempt ($13; VWITX)
(0.4)
C
0
0
60
Vanguard International Value
($33; VTRIX)
3.2
D
8
6
64
Vanguard Short-Term Invest.
Grade ($11; VFSTX)
0.2
B
0
0
80
Vanguard Total Bond Mkt. Index ($10; VBMFX)
(0.7)
E
12
0
59
Vanguard Total Int'l Stock
Index ($16; VGTSX)
2.1
D
6
6
87
Vanguard Wellesley Income
($22; VWINX)
1.4
D
0
0
95
Vanguard Wellington
($32; VWELX)
3.7
B
5
8
87
Wells Fargo Advantage High
Income ($8; STHYX)
2.8
D
4
5
58
* Year-to-date ranks through Feb. 15 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%. Fund ratings are percentile ranks based on our fund-rating system.

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