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ETF Upgrades Come From Diverse Sectors

TSC Ratings data shows that the largest upgrades for May come from various categories of funds.

This shows that with the market declines, and the new economic cycle that we are about to experience, we may see the need for investors to be very selective and specific in picking mutual fund investments. Previously, it was possible to speak generally about a sector and how the funds in that sector had performed and focus more on sector rotation strategies.

Going forward, investing may be more about manager selection of the individual securities in a fund than the upward movement of the general market or index that was previously relied upon to drive returns. It is a stock pickers market that we are entering and the manager's ability in doing this is going to be key in driving results.

The ratings in the table below show that the largest ETF upgrades occurred across various categories from Precious Metals, Natural Resources, Biotech, Domestic Growth, Equity Income, Emerging Markets and Utilities.

As we go forward into what is clearly a downturn of magnitude, TSC Ratings' will be able to leverage its broad universe coverage of some 11,000 Stock Mutual Funds, 5,000 Bond funds, 600 Closed end Funds and 525 ETF's and enable readers to see which managers are better at picking winners and constructing portfolios.

The pick of the list is the WisdomTree International Utilities Fund (DBU). Not only has it improved on its previous B- rating and jumped to the highest possible A+ score, but it resides in a sector of the economy that is more likely to be stable than most in a downturn -- utilities.

Further, it has an international focus making it geographically diversified which is another aspect investors should look for in the current market.

Fund Name Ticker Current Rating Previous Rating Category
Market Vectors TR Gold Miners GDX B- D- Sector - Precious Metals
PowerShares WilderHill Progr Energy PUW A C- Sector - Energy/Natural Res
SPDR S&P Biotech ETF XBI B- D- Sector - Health/Biotechnology
First Trust IPOX-100 Index Fund FPX B+ C- Growth - Domestic
ProShares Ultra Short Dow 30 DXD C+ E+ Growth - Domestic
Market Vectors Environment Ind ETF EVX A+ C+ Equity Income
SPDR S&P Emerging Europe ETF GUR C- E Emerging Market Equity
WisdomTree International Utilities DBU A+ B- Sector - Utilities

Looking at the downgrades we have four of the largest downgrades occurring within the ProShares Ultra Short family of funds all with a domestic growth focus. And three funds from emerging markets particularly Asian emerging markets that have been experiencing rapid inflation of late.

Fund Name Ticker Current Rating Previous Rating Category
ProShares Ultra Sht Rus 2000 Growth SKK D- B+ Growth - Domestic
ProShares Ultra Short Russell 2000 TWM C- A Growth - Domestic
ProShares Ultra Short SmallCap 600 SDD C- A Growth - Domestic
SPDR S&P China ETF GXC E C Non-US Equity
SPDR S&P Emerging Asia Pacific ETF GMF E C- Emerging Market Equity
iPath MSCI India Index ETN INP E- D+ Emerging Market Equity
ProShares Short S&P Small Cap 600 SBB B- A+ Growth - Domestic

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

In keeping with TSC's Investment Policy, employees of 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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