4 of the Year’s Top Diversified ETFs

09/14/2011 8:30 am EST

Focus: ETFS

Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

Mid-year leaders may be year-end winners, writes Jim Lowell of Forbes ETF Advisor.

With so much worry about where we are headed, based on assumptions of more of the same geopolitical, global economic, and earnings scenarios continuing to paint us into a tough corner, I think it’s wise to consider where we have just been and what has fared best in that interim.

Not that history always repeats itself. But if all is equal to the last seven months in the ensuing ones, then it would be a fool’s gambit to dismiss what has worked well.

In order to get an overview of the market and what has worked well, I divided the globe into three camps: stocks, bonds, and sectors. It doesn’t go without saying that cash—in particular the US dollar—has done what it has always done in times of crisis: risen.

Meantime, the performance behavior of our stock and bond ETFs exhibit characteristics of a reasonable marketplace. More aggressive funds are losing less than battleship ones, emerging-market bonds are helping buffer our emerging-market stock stake, and bonds are tipping toward safety and credit quality.

Bonds are a tale of two cities. Corporate balance sheets have rarely looked more solven, while government ones have rarely looked less so. Still, in a flight to safety, the assumption is that governments will withstand meltdowns better than companies. You won’t find me in that camp.

Sector-wise, defense has been the name of the game since the outset of 2011, and I think this is likely to remain so through its end.

Utility and commodity ETFs dominate the list in number and performance, while gold ETFs continue to benefit from the fear trade that has even seasoned investors seeing no downside to chasing the precious metal. But those who would have thought of chasing the mining stocks as an equivalent trade would be sorely disappointed with the results.

The macro trend of a flight to US, multinational, quality, leadership, balance sheet strengths, etc., remains the preferred route through the current turbulence. But the chart also reveals some divergences worth noting and reviewing as alternate flight paths.

First Trust Value Line Dividend (FVD)
This ETF seeks investment results that correspond to the price and yield performance of the Value Line Dividend Index. It began trading in August 2003, and has a market value of over $270 million. The top three sectors are utilities (23.2%), consumer staples (19.5%), and financials (13.9%).

The top ten holdings are Vodafone, Unilever, Consolidated Edison, Dominion Resources, ITC Holdings, New Jersey Resources, Everest RE Group, The Southern Company, British American Tobacco, and Colgate-Palmolive.

iShares DJ Select Dividend (DVY)
This ETF seeks investment results that correspond to the price and yield performance of the Dow Jones US Select Dividend Index. It began trading in November 2003, and has a market value of over $6.5 billion. The top three sectors are utilities (34.7%), consumer goods (21.2%), and industrials (12.9%).

The top ten holdings are Lorillard, VF, Chevron, Entergy, Kimberly-Clark, Integrys Energy, McDonalds, FirstEnergy, Clorox, and Oneok.

PowerShares Dividend Achievers (PFM)
This ETF seeks investment results that correspond to the price and yield performance of the Broad Dividend Achiever Index. It began trading in September 2005, and has a market value of approximately $200 million. The top three sectors are consumer staples (26.9%), energy (16.7%), and industrials (12.6%).

The top ten holdings are IBM, Wal-Mart, Johnson & Johnson, Proctor & Gamble, Exxon Mobil, Coca Cola, Chevron, AT&T, PepsiCo, and ConocoPhillips.

Rydex S&P Midcap 400 Pure Growth (RFG)
This ETF seeks investment results that correspond to the price and yield performance of the S&P MidCap 400 Pure Growth Index. It began trading in March 2006, and has a market value of over $540 million. The top three sectors are consumer discretionary (28.9%), technology (24.2%), and health care (17.8%).

The top ten holdings are Green Mountain Coffee, Rackspace Hosting, Deckers Outdoor, Newmarket, Medicis Pharmaceutical, Hansen Natural, Fossil, The Cooper Companies, Informatica, and Ascena Retail Group.

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