Every day I rank hundreds of ETFs based on a proprietary model that helps me determine which funds have performed best over a set period of time and which have the best chance to continue their trends. PowerShares Dynamic Networking ( PXQ): PXQ and rival iShares S&P North American Networking ( IGN) have gained momentum during the past quarter as shared components like Cisco ( CSCO) and F5 Networks ( FFIV) advanced. PXQ differs from IGN in portfolio construction. While PXQ is a capitalization-weighted index that favors large-cap names like Motorola ( MOT) and Research In Motion ( RIMM), PXQ uses "merit criteria," including fundamental growth, stock valuation and investment timeliness and risk factors to weight components.
While IGN has bested PXQ for year-to-date return, 40.37% vs. 34.35%, respectively, IGN held up better during the difficult market last year. In exchange for missing 6% on the upside, PXQ's investors fell only 2.76% for the one-year period ending June 30 vs. a 16.86% drop in IGN. Both IGN and PXQ should benefit from the hefty stimulus funds allocated to the networking sector during the stimulus. As broadband access is extended and networking reaches more rural areas, networking ETFs should continue to grow. Market Vectors Coal ( KOL): KOL tracks the Stowe Coal Index, which includes a globally diversified pool of coal companies. The companies in the index engage in coal transport, equipment manufacturing and the production of clean coal. To be included in the index, the coal companies must be principally engaged in the coal industry, derive 50% of revenue from the coal industry, have a market cap exceeding $200 million and have a three-month average daily turnover greater than $1 million. Investors could see a "reflation" of commodity prices and a continued increase in momentum from KOL in the upcoming months. The Obama administration earmarked $1 billion for clean coal-maker Futuregen, and despite the recent pullout of two major investors, the project represents a government commitment to clean coal. Ohio uses coal to power 86% of its energy needs, according to a recent New York Times article, and coal is key to many energy intensive industries like steel.
iShares Broker Dealers ( IAI): Financials have rebounded from market lows and the broker-dealer industry has benefited from the rise, despite a potential slew of new regulation. Many broker-dealers were laid low by their mothership banks, but the demand for broker-dealer services in unlikely to wane in the near future. As fear and a volatile market continue to drive investors to trading, broker-dealers benefit from the influx in volume.
IAI tracks the Dow Jones U.S. Select Investment Services Index. IAI's underlying index aims to mirror the performance of the investment services sector of the U.S. equity market. Securities in the IAI basket include specialized financial services that can range from securities brokers and dealers to online brokers to securities or commodities exchanges. Market Vectors Steel ( SLX): Emerging economies like Russia, India and China have been on the upswing, recovering from significant losses over the past year. As the demand for raw materials and infrastructure bounces, SLX should be the beneficiary of the rebound. While the dollar has continued to be strong, signs of weakness at the end of June suggested that a down draft in the dollar could be imminent. A weakening dollar could also help holders of SLX. SLX tracks the AMEX Steel Index, which includes companies primarily involved in a variety of activities that are related to steel production, including the operation of manufacturing mills, fabrication of steel products or the extraction and reduction of iron ore. The top component for the fund as of June 30 was Rio Tinto ( RTP). SLX is a liquid ETF with a narrow scope, and more than 400,000 shares have traded daily over the last three months.