Six stars is a term used in the hospitality world that indicates a new standard of performance. In fact, only one hotel has ever been given a six-star rating from American Academy of Hospitality Sciences.
If January is an indication of what to expect this year, we would give six stars to the
Vanguard REIT Index ETF
for its performance. The fund, which is part of TheStreet.com Ratings' model ETF portfolio, is up 12.8% in the past 32 days.
TheStreet.com's Ratings coverage universe now consists of 216 of the 362 actively monitored U.S.-traded ETFs. The theoretical portfolio of 10 ETFs that we use to track market trends performed better than hoped, with the theoretical $10,000 momentum portfolio returning 5.3% for the month, well above the
, which returned 3.1% during the same period.
Admittedly, the ETF trend portfolio has a strong global and international composition. So maybe a fairer comparison would be the MSCI World Capital Markets Index, which posted a 5.1% total return during the same period.
The weakest position in the portfolio was our
iShares Global Financials
ETF, which just matched the S&P 500 benchmark. During most of the month, the lagging position had been the
on fears that higher energy costs would dampen some of the margin expansion previously forecast for utilities. But it took just one good cold front for the utilities' performance to snap back.
As we wrote last week, several events are drawing investor attention to pooled real estate investments, primarily through REITs. The still-pending takeover battle for
Equity Office Property
, the hot $18 billion in public REIT issuance, and the number of high-profile, high-stakes acquisitions of properties from hotels to nursing homes contribute to the buzz about real estate. Any way you look at it, REITs have been one of the best ways to build wealth and add diversification to a portfolio this month and over the past few years.
REITs, the Pacific region and emerging-market ETFs in our model portfolio were the three leading contributors to its strong January performance, while the laggard holdings included global financial and large-cap value in both the U.S. and Europe.
So what are the suggested changes for February?
Despite the run in these REITs, we are holding on to the Vanguard REIT Index, whose largest holding,
Simon Property Group
, we favorably profiled in last week's
Hot Properties story.
We also considered whether the
was the right representative for the utility sector. Looking at this ETF's composition, the top 10 names in it equal 75% of the portfolio, with a rather large $23 billion average market capitalization.
The top five stocks here include
The Southern Company
. Our stock model gives buy ratings to all five major names in this one and reinforces that this ETF is a good one to own in this sector.
With the performance of the model ETF portfolio for last month, it is hard to argue that a lot has to be changed. That said, however, we have one swap that looks like it could improve performance.
We are increasing exposure to the broader capital markets by selling
iShares Global Financial
streetTRACKS KBW Capital Markets
, which sports an attractive 6.2% yield.
The top five stocks in this ETF include
Chicago Mercantile Exchange
Beside the yield pickup and higher-rated stocks, we like the concentration on stocks that are likely to be beneficiaries of the significant M&A activity of 2006, which also looks to continue into 2007. Many of these stocks will likely report great 2007 annual earnings over the next few weeks, so this may be quite a timely call too. The table below shows what the rebalanced theoretical portfolio would consist of.
Rudy Martin is the director of research for 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.
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 Martin cannot provide investment advice or recommendations, he appreciates your feedback;
to send him an email.