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Exchange Traded Fund (ETF) Focus - Leading and Lagging Sectors

by Nick Perry (regressionchannels@sir-inc.com) 8/26/2005 3:02 PM


Keywords:

IVV

DIA

stocks

etf

This weekly column of SchaeffersResearch.com highlights some of the tools available in our new ETF center. Regular readers have seen me use Exchange-Traded Funds (ETF) to perform sector analysis in the past. Many of you have expressed a desire to be able to retrieve this type data on your own and our new ETF center gives you the ability to do just that, as well as much more.

Note: If you are not familiar with the advantages that ETFs offer, make sure you read the information in our Education and FAQ sections.

When you go to the Leading/Lagging Sectors page, you are presented with two drop down boxes. The first allows you to sort the ETFs based on their performance. The second allows you to select a time span ranging from one day all the way out to two years. I think that this is an important feature to note because it allows you the flexibility to pick a time frame that matches your investment holding period.

I like to look at sectors relative to each in order to see what trends may be developing. I also like to look at multiple time frames to help reveal the underlying flow of money. An added bonus of the ETF Center is that you can directly analyze each ETF by clicking on its ticker symbol.

The graphs below were designed to supplement the data you can already pull in the ETF center and are based on a select list of ETFs and indices that I follow. As usual, here are the top and bottom performing groups from last Friday's close through this afternoon.





Last week we saw that decliners outpaced advancers as gains were capped below one percent while losses were spread across groups such as retail, basic materials, oil services/energy, and natural resources.

This week we once again see slight downward bias as materials led the financials, telecom, Internet, and Dow Jones Industrial Average lower. On the upside, we see that some of the interest-rate-sensitive groups managed small gains.

For a longer-term perspective, the bullets below show the year-to-date returns for the ETFs listed above.

Year-to-Date Returns for This Week's Top Performing Sector Exchange Traded Funds:

  • Utilities Sector SPDR (XLU) +15.4%
  • Utilities HOLDRS (UTH) +16.9%
  • iShares Utilities (IDU) +14.4%
  • Wilshire REIT Fund (RWR) +6.9%
  • iShares Treas Bond (TLT) +6.7%
  • iShares Networking (IGN) -1.5%
  • iShares C&S Realty Majors (ICF) +6.9%
  • Oil Service HOLDRS (OIH) +33.4%
  • iShares Real Estate (IYR) +3.6%
  • iShares Natural Resource (IGE) +25.7%

Year-to-Date Returns for This Week's Bottom Performing Sector Exchange Traded Funds:

  • iShares Industrial (IYJ) -3.6%
  • DIAMONDS Trust (DIA) -3.3%
  • iShares Financial Sector (IYF) -3.8%
  • Internet HOLDRS (HHH) -17.3%
  • Telecom HOLDRS (TTH) -8.0%
  • Financial Sector SPDR (XLF) -4.4%
  • iShares Financial Svcs (IYG) -6.4%
  • Regional Bank HOLDRS (RKH) -6.4%
  • Materials Sector SPDR (XLB) -8.4%
  • iShares Basic Materials (IYM) -6.2%

Here we see a somewhat interesting situation where the top performing groups show generally positive year-to-date returns while the bottom performing groups show mostly negative year-to-date returns.

Overall, two points seem to be worth mentioning. The first is a carry over from what I discussed last week when we looked at the analysts ratings from Zacks for the 10 largest components in the iShares S&P 500 Index Fund (IVV). (You can click here to see that table again.) As you may recall, it was evident that this was not an underloved group and I said this reflected overall complacency. I am reminded of this fact again as I look at the data above and see the lackluster action of the DIAMONDS Trust, which tracks some of the large-cap names. With the Street still in "buy" mode, I think it pays to keep eye out for tepid action.

The second point of interest is the financials. Near the beginning of the year I remember hearing some chatter about how this group was carrying a relatively heavy weighing the S&P 500 (SPX). And looking at the year-to-date performance, it seems the financial group hasn't been a huge drag on the market, but it is clearly not a leader. I went through some charts and the Financial Sector SPDR (XLF) caught my eye.




Created with SuperCharts by Omega Research

The XLF has been trading in three-point range since early 2004 and the group currently appears to be headed back toward the lower end of the range. However, notice that the most recent rally attempt ran out of steam a little earlier than the rally we saw at the beginning of the year. While this could simply be "noise," it might hint that buying demand has begun to weaken. If so, that might mean the bottom of this range is vulnerable so keep an eye on that should the ETF slide back to that level.


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