I am retired and take educated guesses on all things financial.

March 18, 2008

March 19, 2008: Claymore Sector Rotation ETF: Out of shape

I own the Claymore/Zacks Sector Rotation ETF. I bought it because the concept of rotating in and out of sectors determined by professionals running an index that was respected as a part of my portfolio was appealing. Looking at their current portfolio and judging the ETF's overall performance, I am disappointed and will sell it to reinvest in other securities.

Granted, XRO has not been in existence for a long period of time (9/21/2006)and may still prove that their concept makes it worthwhile to invest in. Perhaps I was expecting too much of XRO, given current market conditions. But it has been a laggard in my portfolio and I have come to the realization that sector rotation happens too quickly for a fund such as XRO following an index (the Zacks Sector Rotation Index in this case) and causes this ETF to be too little and too late to the sector rotation party.

XRO is a popular ETF. It has over $113m in managed assets and trades very close to asset value. It holds approximately one hundred securities, has an expense ratio of 60% and trades upwards of 55,000 shares per day. Currently tie ETF trades at $27.09/share paying a miserly .69% dividend. Share price has ranged from $26.46-$33.13 over the past year.

The top current holdings are Gilead Sciences (2.19%), Union Pacific (2.10), CVS Corporation (2.04%), McDonalds (1.99%), Hewlett Packard (1.98%), Thermo Electron (1.96%), Deere (1.88%), Emerson Electric (1.85%) and DaimlerChrysler AG (1.83%). Reviewing other securities in their portfolio roster leaves me less than impressed.

Sector-wise, approximately 27% is in Tech, 21% in Medical, 13% Industrial Products, and 13% in Retail.The remainder is divided into Consumer Discretionary, Aerospace, Autos, Business Services, Multi-Sector Conglomerates and Transportation. Looking at the March 17 roster of top ten securities and those listed as of December 31st, they read almost the same. Having over 95% in domestic equities with little or no sector exposure in commodities for months, failing to include effectively researched financials now at what may well be a bottom, for example,indicates to me that their rotation equates to turning a battleship in a canal. Recession, inflation, currency valuations, foreign influences, ETC. on sectors? The "sector rotation" is stuck in the mud.

Granted, this ETF did beat the S&P in 2007 and is performing at a par with many other Funds. One could make the observation that I am too tough on XRO. My view is that if a security has a mission to be a professionally indexed rotation fund, then this ETF has been too slow, too stodgy, too often to warrant my investment cash. I expected better and am willing to accept more aggressive sector maneuvers to get it.

Claymore does have some interesting products. Perhaps their Country Rotation Fund (CRO) will hit a sweet spot and be a worthwhile addition to a diversified portfolio.


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