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ETF Ratings: Build Your Own Fund of Funds

The best-rated ETFs for the month of April were concentrated in the non-U.S. equity space, which includes currency and country-specific funds.

The list of the top 20 TSC-rated funds also gives a good suggestion as to where investors may want to park money going forward. A portfolio of ETFs could be constructed from the following funds and/or themes, and the resulting allocation would be diversified in terms of geography, asset class and style.

If investors were to construct a fund of funds for this month and next, and maybe beyond, our models suggest that it would consist of country funds, currency funds, emerging market funds, commodity, energy & natural resources, precious metals and domestic small cap.

For good measure, there is also a bond fund to throw in the mix to give diversification.

Whip Inflation Now With ETFs

All funds below carry a TSC rating of A+.

Country-specific or regional specific funds were the highest number in our list. The funds below all performed well, but the standout over the month of April was Japan. ETFs exposed to Spain, the Netherlands and France had the best three-month returns. The iShares brand of ETFs from Barclays Global Advisors dominated this category.

Fund Ticker 1 Month Return 3 Month Return
DJ Euro STOXX 50 ETF FEZ 0.95 4.55
iShares MSCI EMU EZU 1.18 4.8
iShares MSCI France EWQ 1.83 6.18
iShares MSCI Netherlands EWN 1.16 8.28
iShares MSCI Pacific ex-Japan EPP 3.84 1.78
iShares MSCI Spain EWP 0.06 9.32
iShares MSCI Switzerland EWL -2.85 2.41

The one ETF exposed to the BRIC nations (Brazil, Russia, India and China) also allows for an emerging markets angle to any portfolio of funds. The Claymore/BNY BRIC ETF (EEB) has performed exceptionally well over the past month and quarter, providing a nice high-risk and high-return element to any portfolio and giving the fund-of-funds a little extra performance kick.

Fund Ticker 1 Month Return 3 Month Return
Claymore/BNY BRIC ETF EEB 11.27 11.07

Invesco's Powershares brand of ETFs offers funds exposed to the commodity, precious-metals and energy sectors. The energy sector continues to perform well and should be included in any portfolio in the near term.

Fund Ticker 1 Month Return 3 Month Return
PowerShares DB Commodity Idx Track DBC 2.43 19.05
PowerShares DB Gold Fund DGL -6.34 -5.95

Fund Ticker 1 Month Return 3 Month Return
PowerShares Dynamic Energy PXI 6.31 17.88
PowerShares FTSE RAFI Energy PRFE 4.87 12.97

Domestic small-cap growth ETFs came up on our radar as having A+ ratings despite the one- and three-month returns being less than stellar, probably due to their favorable longer-term returns for the one- and three-year time periods. With the current weakness in the U.S. economy, investors may decide to leave this asset class out of any portfolio.

Fund Ticker 1 Month Return 3 Month Return
ProShares Short Russell 2000 RWM -2.07 -1.1
ProShares Short S&P Small Cap 600 SBB -2.05 -1.25

Finally, a bond fund: the iShares Lehman bond fund, focusing on the three- to seven-year Treasury spectrum. Its performance was a little soft -- but, considering the volatility of the markets, quite stable. With doubt over further interest rate cuts from the Federal Reserve, investors may want to hold off betting on this asset class going forward.

Fund Ticker 1 Month Return 3 Month Return
iShares Lehman 3-7 Year Treasury Bd IEI -2.11 -0.77

Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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