The 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), rising five notches to A- from a rating of C. With holdings of Duke Energy ( DUK), Dominion Resources ( D), and American Electric Power ( AEP), 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) 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) ranks the highest at C+ on large holdings of United Technologies ( UTX), Boeing ( BA), Lockheed Martin ( LMT), and General Dynamics ( GD)

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 ( FXM), 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), 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 ( IPE). 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.

Largest Ratings Upgrades and Downgrades
Fund (Ticker) Rating
Previous Rating
Notches Moved
PowerShares Dynamic Utilities (PUI) A-
Sector - Utilities
5 Up
Vanguard Intermediate Term Bond ETF (BIV) B+
General Bd - Investment Grade
4 Up
PowerShares Aerospace & Defense (PPA) C+
Equity Income
3 Up
PowerShares Dynamic Enrg Exp & Prod (PXE) C
Sector - Energy/Natural Res
3 Up
iShares S&P U.S.Preferred Stock Ind (PFF) D-
Equity Income
3 Up
SPDR Barclays Capital TIPS ETF (IPE) C+
Government Bond
-5 Down
KBW Regional Banking ETF (KRE) C
Sector - Financial Services
-5 Down
HealthShares Drug Disc Tools (HHV) C-
Sector - Health/Biotechnology
-5 Down
PowerShares DB Gold Fund (DGL) C
Sector - Precious Metals
-6 Down
CurrencyShares Mexican Peso Trust (FXM) C
Non-US Equity
-6 Down
Source: Ratings

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.