Dow Jones Industrial Average

on Thursday fell below what was previously the year's nadir, on Oct. 10. Now, 7,197, from Oct. 10, 2002, is squarely in the sights of the bears. If that level is breached, we would be back to prices not seen since 1997. Ratings' review of the five most improved and deteriorated exchange-traded fund rating changes for the month shows a few of the defensive ETFs rising faster than their peers. Meanwhile, fear of deflation turned the outlook on five funds from bullish to neutral.

The most improved ETF this month is

PowerShares Dynamic Utilities

(PUI) - Get Report

, rising five notches to A- from a rating of C. With holdings of

Duke Energy

(DUK) - Get Report


Dominion Resources

(D) - Get Report

, and

American Electric Power

(AEP) - Get Report

, the fund has slipped lower recently, but not as much as the overall market sell-off.

The second-most improved fund shies away from stocks completely, instead focusing exclusively on intermediate-term U.S. government bonds. The

Vanguard Intermediate-Term Bond ETF

(BIV) - Get Report

rose from a hold rating of C to a buy rating of B+.

Of the remaining ETFs on the list, climbing three notches, the

PowerShares Aerospace & Defense Portfolio

(PPA) - Get Report

ranks the highest at C+ on large holdings of

United Technologies



(BA) - Get Report


Lockheed Martin

(LMT) - Get Report

, and

General Dynamics

(GD) - Get Report

The two funds on a six-notch free fall are both tied to the U.S. dollar and predicted inflation/deflation levels. On Wednesday, the consumer price index for October came in 1% lower than September. Even more dramatic was October's 2.8% month-over-month reading in the producer price index released Tuesday. In deflation, it takes fewer dollars to buy the same amount of goods.

First, the

CurrencyShares Mexican Peso Trust


, which rises with the strength in the peso, careened six notches to a rating of C. At the peso's peak strength on Aug. 4, it took $101.44 to buy 1,000 pesos. By the end of October, the same 1,000 pesos could be purchased for just $77.97.

The other fund dropping six steps lower,

PowerShares DB Gold Fund

(DGL) - Get Report

, is tied to the Deutsche Bank Liquid Commodity Index-Optimum Yield Gold Excess Return Index, which tracks the bullion price. Gold, priced in U.S. dollars, has been on a roller-coasterlike decline down to the $750 level since a peak on March 17 at $1,032.70 per ounce.

On a five-notch drop is the

SPDR Barclays Capital TIPS ETF


. Investors expecting deflation fled these inflation protected securities, leading to a new rating of C+ from A.

With each additional month of data, Ratings updates its ranking scorecard, assigning new ratings to each fund. Below is the list of the five most-improved and five most-deteriorated exchange-traded funds from Sept. 30 to Oct. 31.

For more information, check out an

explanation of our ratings


Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.