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Sector ETFs: Non-Cyclical Sectors Handily Beating Cyclical Sectors

09 February 2009 at 10:58 am by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

The numbers won't lie. Sometimes, they may mislead, but they won't lie.

Through 2/6/2009, a number of U.S. sector funds had actually posted YTD gains. A number of segments, of course, had not.

What's most intriguing about the breakdown is the fact that… non-cyclical sectors have been the early winners in 2009; energy, health care, utilities and technology are often cited as being less affected by interest rates or recession. In contrast, cyclical segments like consumer discretionary, financials and industrials may be more affected.

Recognizing the high level of angst with regard to the fragile state of the global economy, should we be surprised by the current market leadership?

Stock Sector Performance (Through 2/6/2009)
Technology (XLK) 3.63%
Energy (XLE) 3.56%
Health Care (XLV) 3.20%
Utilities (XLU) 2.96%
Basic Materials (XLB) -0.40%
Consumer Staples (XLP) -5.66%
Consumer Discretionary (XLY)  -6.68%
Industrials (XLI) -9.74%
Financials (XLF) -21.80%

I recently addressed why some folks feel that Tech (XLK) and Health Care (XLV) will lead us out of the global mess. (Read Morningstar Grades and ETFs: "Tech and Health Care Show the Most Promise.")

Energy bulls seem to be back, sensing that oil may hover between $40 and $50 per barrel in 2009. Many of the biggest names in the exploration, production and distribution business are represented in the SPDR Energy Select (XLE) Fund. What's more, with the potential for more certainty about the commodity comes more certainty about the earnings potential. XLE is 20% higher than the November lows.

Energy xle 20 percent higher

Utilities (XLU) has been one of my personal favorites for quite some time. While some have questioned the valuation, I have emphasized the defensive weathering of the storm, the infrastructure play and the worth-the-wait 4% dividend. (Review "Shining Stars During Terrible Trading Days.").

I think if there's one surprise in the bunch, it's the large losses for the normally sanguine Staples (XLP). They're supposed to be recession-proof, representing toothpaste, toilet paper and peanut butter.

Then again, this may simply reflect the reality that investors are pulling back from most consumer stocks. McDonalds, maybe. Wal-Mart possibly. Everything else seems to be under the microscope.

On an up note, it's nice to see some sectors of the market garnering investor interest. In the recent past, consumer stocks and financial stocks double-fistedly pulled the rest of the market segments down the proverbial toilet. Today, perhaps tech, health, energy and utilities will have enough sway to pull the other segments up by their bootstraps.

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast or on your iPod at this link.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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