TheStreet.com Ratings: REIT Boosts ETF Portfolio

Six stars is a term used in the hospitality world that indicates a new standard of performance. In fact, only one hotel has ever been given a six-star rating from American Academy of Hospitality Sciences.

If January is an indication of what to expect this year, we would give six stars to the Vanguard REIT Index ETF(VNQ Quote) for its performance. The fund, which is part of TheStreet.com Ratings' model ETF portfolio, is up 12.8% in the past 32 days.

TheStreet.com's Ratings coverage universe now consists of 216 of the 362 actively monitored U.S.-traded ETFs. The theoretical portfolio of 10 ETFs that we use to track market trends performed better than hoped, with the theoretical $10,000 momentum portfolio returning 5.3% for the month, well above the S&P 500 benchmark ETF (SPY Quote), which returned 3.1% during the same period.

Admittedly, the ETF trend portfolio has a strong global and international composition. So maybe a fairer comparison would be the MSCI World Capital Markets Index, which posted a 5.1% total return during the same period.

The weakest position in the portfolio was our iShares Global Financials (IXG Quote) ETF, which just matched the S&P 500 benchmark. During most of the month, the lagging position had been the Utilities HOLDRs (UTH Quote) on fears that higher energy costs would dampen some of the margin expansion previously forecast for utilities. But it took just one good cold front for the utilities' performance to snap back.

As we wrote last week, several events are drawing investor attention to pooled real estate investments, primarily through REITs. The still-pending takeover battle for Equity Office Property (EOP Quote), the hot $18 billion in public REIT issuance, and the number of high-profile, high-stakes acquisitions of properties from hotels to nursing homes contribute to the buzz about real estate. Any way you look at it, REITs have been one of the best ways to build wealth and add diversification to a portfolio this month and over the past few years.

REITs, the Pacific region and emerging-market ETFs in our model portfolio were the three leading contributors to its strong January performance, while the laggard holdings included global financial and large-cap value in both the U.S. and Europe.

January ETF Trends Portfolio REITs, Pacific Region and emerging markets lead a great month
ETF	Ticker	Shares	Beginning Value ($)	Price as of 2/6/2007	Ending Value ($)	Return for Month (%)
IShares MSCI VLU IDX	EFV	14	$995.67	$73.63	$1,030.81	3.53%
IShares MCSI EAFE EX-JAP	EPP	8	971.92	129.46	1,035.68	6.56%
IShares Global Fin	IXG	11	978.45	91.72	1,008.92	3.11%
IShares S&P GL Telec	IXP	17	1,073.72	65.4	1,111.80	3.55%
IShares DJ Energy SC	IYE	10	967.9	101.47	1,014.70	4.84%
IShares MRGSR LGVLIX	JKF	12	989.16	85.08	1,020.96	3.21%
IShares MRGN SM Core	JKJ	12	1,020.60	89.02	1,068.24	4.67%
ML Utilities HLDR1240	UTH	8	1,038.56	132.09	1,092.09	5.15%
Vanguard Real Estate ETF	VNQ	13	985.27	85.48	1,111.24	12.79%
Vanguard Emerg Mkt ETF	VWO	13	973.7	79.04	1,027.52	5.53%
Holdings Subtotal			9,994.95		10,521.96	5.27%
Cash			5.05		5.05	0.00%
Total			10,000.00		10,527.01	5.27%
SP500 (SPY)			140.54	144.89	144.89	3.10%

So what are the suggested changes for February?