10 Terrific ETFs for March

The performance of the average ETF globally last month was up 6% last month, but this hides the fact that the top ETF funds actually had much higher returns -- an average 11% for the month.

Taking a closer look at the funds normally available to U.S. investors, I put together a watch list portfolio of 10 funds to see if using a momentum strategy in the next six months might generate excess returns above the normal U.S. and global market indices.

Here's the list of the hottest ETF funds last month and where you might find some of next month's top performers.

Click here for larger image.

Take a closer look at what's in the theoretical $25,000 portfolio of ETFs. I created the above watch portfolio at foliofn.com, an online broker that offers flat-fee trading. You can find an easier to use service, like TheStreet.com fund screener, but with a little help from their customer support and some patience I was up and running in a short time.

Here in ticker order are the top 10 ETFs for this project.

1. First on the list is PowerShares DB MultiSector (DBB). This fund tracks three commodity contracts on the London Metals Exchange. The futures contracts are for copper, aluminum and zinc. In a previous story. I highlighted the investment outlook for steel and the story is much the same for these other metals. Again as detailed in the report, the next 24 months may be one of the best periods to invest in basic-material stocks.

2. Next is ProShares Ultra Oil & Gas (DIG), which invests in the integrated oil companies. The top three holdings Exxon Mobil (xom), Chevron(CVX)and ConocoPhillips(COP) represent 45% of the portfolio. This ETF aims to generate returns that are twice those of the DJ Oil & Gas Index. With oil hitting $105 per barrel last week and the rapid movement in oil prices, DIG should surely move higher in the near term.

3. The iShares MSCI Brazil (EWZ) is my favorite ETF and I continue to recommend it. Two high quality companies, PetroBras and Vale represent almost half of the portfolio. But during the last three months this ETF has traded sideways, dropping from the low $80s to $70 in January on concerns of a U.S. slowdown, then hitting a new $88 high in February on the iron-ore price increases before retreating on profit-taking.

Fortunately, the underlying trends in Brazil remain positive and as spelled out in my sector report the fundamental forces are very long term in nature. In addition, on a company by company basis the financial picture for the two largest holdings in this fund continues to improve. I suggest that the best approach with this one is to watch it and buy on dips.

4. If you want a broader Latin American fund, check out the SPDR S&P Emerging Latin America (GML). In contrast to other Latin regional ETFs, 15% of this fund is invested in countries other than Brazil and Mexico. There is no escaping the fact that the largest industry sector in Latin America is the very hot material stocks. These represent 25% of GML holdings.

Note that the next largest concentration in this ETF, 17% of the fund is invested in financial stocks such as Banco Bradesco(BBD) and Banco Itau(ITU). As Brazilian companies repatriate earnings, the financial institutions that serve them should also do well. Unlike the weakened U.S. and European financials, the Latin banks are doing well and believe it or not are even announcing acquisitions and new ventures. This good performance should fall to the bottom line and help overall returns for the GML investors as well.