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Energy Sector Again Dominates Top ETF List

The results for the best three-month performers in the TSC ETF universe is clearly stacked towards energy and natural resources. This is the only real sector that has yet to entertain the specter of an earnings downgrade in the current slaughterhouse that is the U.S. market.

Gasoline and commodity prices maybe driven in some part by speculation, which in turn is being fueled by loose monetary policy. It's likely that a low Fed funds rate is permitting a form of "commodity carry trade" to exist.

If the price of oil stays high, earnings for this sector will hold up much better at a time when the earnings from almost every other sector in the economy are likely to come under pressure and revised down. So we may see more of the same dominance of energy and natural resource ETFs going forward -- but how long this can last remains to be seen.

The top ETF was not, however, exposed to the oil market, but to coal -- in particular the Market Vectors Coal ETF (KOL), which is designed to generate results corresponding to the price and yield of the Stowe Coal Index.

For comedy relief we have the HOLDRS B2B Internet ETF (BHH) in second place, which is like a Model T Ford leading at Daytona. This is an absurd fund for absurd times, and it is the epitome of nondiversification, investing 90.6% of its assets in just one company: Ariba Incorporated (ARBA), which provides on-demand spend management solutions. ARBA is rated a SELL by TSC Ratings.

The fund also has 10% of its assets in the Internet Capital Group (ICGE) a provider of software and services to reduce transaction costs between firms. This company is rated a HOLD by TSC Ratings.

Fund Name TICKER TSC Grade Category 3 Month Return 1 Month Return
Market Vectors Coal ETF KOL U Sector - Energy/Natural Res 52.03 7.01
HOLDRS B2B Internet BHH C- Growth - Domestic 45.95 -10.00
United States 12 Month Oil Fund USL U Sector - Energy/Natural Res 45.27 11.77
PowerShares DB Oil Fund DBO C Sector - Energy/Natural Res 41.27 11.58
PowerShares DB Energy Fund DBE C+ Sector - Energy/Natural Res 40.05 10.00
United States Oil Fund USO B- Sector - Energy/Natural Res 39.70 10.29
iPath S&P GSCI Crude Oil Total Ret OIL C Sector - Energy/Natural Res 39.27 10.20
ELEMENTS RIC Energy Total Return RJN U Sector - Energy/Natural Res 39.13 10.08
ProShares Ultra Oil & Gas DIG A- Sector - Energy/Natural Res 36.05 5.08
SPDR S&P Metals & Mining ETF XME B Equity Income 35.71 8.07
iPath DJ AIG Energy Tot Ret Sub JJE U Sector - Energy/Natural Res 35.47 10.84
First Trust ISE-Revere Natural Gas FCG C Equity Income 34.09 6.91
ProShares Ultra Short Financials SKF C Sector - Financial Services 33.28 41.99

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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