Monday, May 12, 2008

Welcome to the ETF Momentum Tracker Hotline Report!

In this Issue:
 
· Portfolio Update
· Big Gainers—Sector
· Big Losers—Sector
· Big Gainers—International
· Big Losers—International

Please note: This is NOT our weekly ETF Momentum Tracker newsletter. If you are a subscriber to the ETF Momentum Tracker and need assistance following our newsletter devoted to ETF sector investing, do not hesitate to call us at (800) 548-3797. We hope that you continue to benefit from this email Hotline, which only provides insight to weekly sector activity but does not substitute for the trading system provided by our newsletter, which is published every Wednesday. Click Here to learn more.

Portfolio Update

Since last Tuesday’s close, the Sector Portfolio decreased 0.63 percent versus a 2.11 percent drop in the S&P 500 Index. The portfolio is trailing the benchmark in 2008 with a negative 6.16 percent return. The International Portfolio fell 2.35 percent versus a 1.34 percent retreat in the EAFE Index over the same period. Year to date, the portfolio leads its benchmark with a negative 3.57 percent return.

Demand for crude oil has declined slightly due to a slowing economy, but crude prices are in a determined uptrend. Prices went from just under $120 a barrel on Monday to more than $126 and stayed there over the weekend. Energy ETFs benefited from the jump in crude prices, in addition to strong earnings from several independent oil & gas producers. For the week, iShares Dow U.S. Oil & Gas Exploration & Production (IEO) advanced 6.20 percent; iShares Dow U.S. Oil Services (IEZ) gained 6.77 percent; and iShares Dow U.S. Energy (IYE) added 3.57 percent. iShares S&P Global Energy (IXC) benefited from a weaker dollar at the end of the week; it traded higher by 3.60 percent. iShares S&P North American Natural Resources (IGE), with heavy energy exposure, climbed 5.14 percent.

Financials had a tough week. The SEC increased regulatory oversight of investment banks early in the week, and AIG and Citigroup delivered bad news to end it. Investment banks will soon be required to report liquidity, funding and capital ratios to the SEC, as part of an effort to increase oversight. More transparency will facilitate an end to the credit crunch, but more pain may be in store for companies with weak balance sheets. Prices of investment banks fell sharply on the news; iShares Dow U.S. Broker Dealers (IAI) slid 4.69 percent on the week.

AIG surprised the market with a record $7.8 billion loss in the first quarter and said it would raise $12.5 billion in fresh capital. The deficit was the second consecutive record quarterly loss for the firm after it posted a record $5.3 billion loss in the fourth quarter of last year. In a bid to raise confidence in the stock, the company announced a dividend increase. Many investors blasted the dividend hike, however, since the firm would need to raise less capital without it.

iShares Dow U.S. Insurance (IAK) outperformed much of the financial sector during the last nine months, even after last week. Only iShares S&P Global Financials (IXG) has a better return over the past nine months, but IXG’s relative outperformance is solely the result of a weak U.S. dollar. Shares of AIG declined 8.77 percent on Friday; for the week, IAK lost 6.04 percent.

Citigroup met with investors and analysts on Friday to outline its plans for turning the bank around. CEO Vikram Pandit said he wants to sell $400 billion of assets in the coming years, about 20 percent of the bank. Investors reacted by selling shares of the company; it lost 2.76 percent on the day.

For the week, iShares Dow U.S. Financials (IYF) fell 5.62 percent; iShares Dow U.S. Regional Banking (IAT) declined 5.11 percent; and iShares Dow U.S. Financial Services (IYG) lost 5.72 percent.

If you would like more information about the ETF Momentum Tracker, our newsletter devoted to sector and international investing, do not hesitate to call us at (800) 548-3797.

Big Gainers —Sector

iShares S&P North American Software (IGV): +2
iShares Dow U.S. Utilities (IDU): +1
iShares Dow U.S. Energy (IYE): +1

Big Losers—Sector

iShares COMEX Gold (IAU): -3
iShares Dow U.S. Medical Devices (IHI): -2
iShares S&P Global Utilities (JXI): -1

Gold is off its high of more than $1,000 an ounce, trading around $880 an ounce this morning. The U.S. dollar strengthened in the past month and most commodities, excepting energy and some foodstuffs, are trading lower. Additionally, a few months ago, stories of people selling their gold coins and jewelry started appearing in the press. High prices have tempered demand for the metal, and combined with greater supply, prices have fallen. Unlike oil, food, or other commodities, and barring a major new find, most of the gold in existence has already been mined. While we may need to wait five or more years for increased oil production triggered by high prices today, the supply of gold in the market can increase within weeks. iShares COMEX Gold (IAU) fell 4.93 percent in the last month.

Big Gainers—International

iShares South Africa (EZA): +4
iShares Sweden (EWD): +3
iShares Austria (EWO): +2

Big Losers—International

iShares Malaysia (EWM): -5
iShares S&P Global 100 (IOO): -2
iShares Germany (EWG): -2

iShares Malaysia (EWM) slid another five spots on the International Momentum Table last week and the fund has lost fifteen spots in the past month. Over the last three weeks, EWM had one of the worst returns in our International universe, losing 2.33 percent.

One positive piece of news came on Friday, when the government announced it would end price controls on steel. In addition, the government lifted export controls, import duties and import licensing. The change is noteworthy because many governments are moving in the opposite direction in response to higher food and commodity prices, opting for stricter controls and export bans in many cases.

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This concludes today's hotline email. Thank you and have a good week . . .

Fidelity Independent Adviser is completely independent of, and not affiliated with, Fidelity Investments or any of the Fidelity mutual funds listed above.

Performance Disclosure.All models and tables presented in this publication are the product of Fidelity Independent Adviser Newsletter, LLC, an independent company operated by Donald R. Dion, Jr., President of Dion Money Management, LLC (DMM), a registered investment adviser that manages assets for individuals, families, trusts and non-profit organizations. The Fidelity Independent Adviser is completely independent of and not affiliated with Fidelity Investments. The model performance returns are compiled by Fidelity Independent Adviser from historical returns of a determined mix of selected mutual funds or exchange-traded funds based upon investment strategies. These results include the reinvestment of all dividends and capital gains. Beginning 3/31/2007, portfolio returns are net of Dion Money Management’s highest fee, 0.4375% per quarter.  The model results do not represent actual recommendations or trading. Model results do not reflect the impact of material economic and market factors that impact DMM's decision-making if DMM were actually managing clients' money. Because DMM manages its actual client portfolios according to each client's specific investment needs and circumstances, model results may in some cases differ significantly from the results our clients achieve, due in part to timing of the recommendations by DMM, market conditions, client money market balances, and timing of client deposits and withdrawals. In addition, client portfolios may contain less or more funds and may contain different funds in order to meet client needs.  Model performance results may have inherent limitations. No representation is made that any account will or is likely to achieve profits or losses similar to those shown, and there are frequently significant differences between hypothetical performance results subsequently achieved by following a particular strategy. Model trading does not involve financial risk, and no model trading record can completely account for the impact of financial risk associated with actual trading. Other factors related to the markets in general or the implementation of any specific trading strategy that can adversely affect actual trading results cannot be fully accounted for in the preparation of model performance results. The volatility of the S&P 500, Wilshire 5000, Russell 2000, Dow Jones and Nasdaq indices may be materially different from that of the client's account, the securities holdings of which may differ significantly from those of the indices. The indices' results shown reflect reinvestment of dividends unless otherwise noted. These indices have not been selected to represent appropriate benchmarks to compare the clients' performance, but rather are disclosed to allow for comparison of the client's performance to that of well-known, widely recognized indices. This material has been prepared solely for informational purposes. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. All investments involve risk including loss of principal.

The ETF Momentum Tracker newsletter had an annualized return of 26.6% in 2007 according to the Hulbert Financial Digest and was a 2007 top-ten performer according to Peter Brimelow of MartketWatch!

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Don Dion's Conference Calls

Please look for an announcement coming soon via E-mail regarding a video presentation of my new Dynamic Global ETF Service, a fundamentally allocated momentum-based active trading strategy for ETF investors looking for exposure to all asset classes. This online presentation will take place on Thursday, May 29.

Conference call archive