Some Fund Sectors Stay Strong

05/16/2007 12:00 am EST

Focus: ETFs

Ron Rowland

Editor, All Star Fund Trader

Ron Rowland, editor of All-Star Fund Trader, hones in on the hottest-performing sector funds and ETFs.

A strong recovery unfolded in April, with the Standard & Poor's 500 price index up 4.3%, its biggest monthly gain since 2003. Despite a cloudy economic outlook, investors found plenty of reasons to buy. First-quarter corporate earnings came in unexpectedly strong; almost 70% of the S&P 500 companies beat the analysts' estimates. Small-cap stocks lagged behind the blue chips.

For the month of April, the Russell 2000 Index was up only 1.7% while the Dow Jones
Industrial Average gained 5.9%. The 12-month comparison is also stark, with the Dow up +17.6% and the Russell 2000 up 6.5%.

A new sector leader may be emerging as health care funds surged higher in April. Fidelity Select Pharmaceuticals (FPHAX) was the top gainer in its family, rising 9.4% for the month. Biotechnology funds were also strong. Rydex Biotechnology (RYOIX) was up 7.5%. The other health care subsectors were positive, but they were still overshadowed by the drug makers.

All types of energy funds continued to climb. Fidelity Select Energy Service (FSESX) was up 7.7% and PowerShares Dynamic Oil Services (Amex: PXJ ) had an even bigger gain of 8.1%. (It closed under $24 Tuesday-Editor.)

Generally, energy service companies did better than exploration and production stocks. A climb by crude oil back above $66 helped drive the sector higher, but by late April oil had backed off from its high. The gain in crude that started when Iran seized British sailors appears to be sustaining itself above the $62 area. A break below that point would probably be short-term bearish for energy sector funds. The long-term up trend would remain intact, however.

The utilities train slowed but did not stop last month. S&P Utilities Sector SDPR (AMEX: XLU ) was up 4.9%, and has an impressive 12-month gain of 37.2%. (It closed at $42.60 Tuesday-Editor.)

Semiconductor stocks made an unexpected surge in April, led by knockout earnings from Texas Instruments (NYSE:TXN ). Fidelity Select Electronics (FSELX ) gained 6.4%, while the Semiconductor HOLDRs (SMH ) shot up +9.7%. Other technology subsectors were positive but not spectacular.

A drop in the dollar to record lows against the euro gave many international funds an extra boost for the month. Among equity funds, MSCI Sweden iShares (AMEX: EWD ) topped our momentum rankings with a 10.6% gain in April. (It closed Tuesday at around $36.50-Editor.)

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