ETFs to Spot What's Hot & What's Not
In my experience, making money in the market is more about being in the
right market sector at the right time than it is about being a great
For instance, currently, biotech and clean energy, and stocks based in
Brazil have been leading the market higher. Conversely, gaming, and
copper and gold mining stocks have been the biggest losers.
Momentum style investors, a category that includes many hedge fund
managers, regularly use this information when deciding where to allocate
their cash. You can do the same thing by checking exchange-traded-funds
(ETFs) performance reports, which are available on several financial
Why Use ETFs?
As you probably know, ETFs are similar to index mutual funds in
that they track the returns of predefined indexes. However, unlike
mutual funds, ETFs trade just like stocks. As interest in ETFs has grown
over the years, the industry has created indexes to track just about
every conceivable market sector. For instance, you can find indexes that
track specific industries such as homebuilders or social media stocks,
commodities and precious metals prices such as the price of livestock,
crude oil, or gold, stocks based in a specific country such as Russia or
Germany, or a specific industry within a country such as China Consumer
stocks, and on and on.
Free ETF Site
Here’s how you can use ETF Screen (www.ETFScreen.com),
a free site, to find out “what’s hot” and “what’s not.” Using it is
simple. Start by selecting
Performance from the top menu. Then, in the “Include” menu, specify
No for both Short Funds and Leveraged Funds, which are not relevant for
our purposes. Leave the remaining selections unchanged.
By default, the site displays all tracked ETFs sorted by one-day
returns, which is too short a time frame. Click on the downward pointing
arrow below each column label to sort the list with top performing ETFs
for that timeframe at the top. Click on the upward pointing arrow to
sort with worst performers at the top. I used one-month returns for the
examples that I gave earlier.
Next sort by the three-month returns column for a longer-term
view. By comparing the one-month returns to the three-month returns, you
can get a handle on which market segments are heating up, and which are
For instance, when I checked, biotech, gold and silver miners, Brazilian
stocks, China Internet stocks, and coffee prices dominated the
three-month top performers list. Since, biotech stocks topped both the
one-month and three-month lists; it looks like the biotech trend is
still strong. However, although gold mining stocks were strong on the
three-month list, they were near the bottom of the one-month list. That
signals that the gold mining stocks have probably peaked.
Hedge funds use the information gleaned from this process to buy ETFs in
strengthening sectors and sell-short those in weakening sectors. You
could do the same, but that’s a risky game. Instead, try repeating this
process a few times; say once a week. I’ll bet that you’ll find that
you’ve gained a valuable perspective on overall market trends, which can
help you make better investing decisions.