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Making money in stocks is as much about being in the right place at the right time as it is about analyzing fundamentals.
Consider home builders. Even though their business has been trashed and the market has been dismal, their stocks have posted gains in the mid-20% range, on average, over the past four weeks. The story is similar for small regional banks. They've recorded low-double-digit gains over the same period.
At the same time, you could have lost serious money holding stocks in promising market segments such as energy and tech -- or in emerging markets, including China.
Big players are trend spotters
Hedge funds, mutual funds and other institutional investors focus intently on which market segments are moving in or out of favor. For them, priority No. 1 is knowing when to bail out and when to jump on a hot trend.Until recently, individual investors didn't have the tools to make those judgments. But now you can use MSN Money's Exchange Traded Funds (ETF) Performance Trackerto do the analysis. I'll explain in a minute, but first, here's some background.
As you probably know, exchange-traded funds are similar to index-based mutual funds. They attempt to track the performance of a specific market by following its index -- for example, the S&P 500 ($INX).
However, mutual funds trade only once a day, after the market closes, and many levy a special charge if you trade too often. ETFs trade just like stocks. You can buy and sell them during the day and as often as you like. You pay the same commission that you would for trading stocks.
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ETFs have caught on with individual investors as well as with the big players. The industry has responded by creating ETFs to track just about every conceivable market segment. Whether you're looking for large-cap growth stocks, small-cap value stocks, basic materials producers, tech stocks, Swedish stocks, Chinese stocks, foreign utilities or, believe it or not, firms that sell mostly to Wal-Mart Stores (WMT, news, msgs), you can find an ETF to fill the bill. (That Wal-Mart ETF, by the way, is FocusShares ISE-Revere Wal-Mart Supplier (WSI, news, msgs).)
The ETF Performance Tracker's intended use is to track ETF returns, either in general or in particular market segments, to determine which ETFs are doing the best. For instance, say you wanted to invest in utilities; you could select "Specialty -- Utility" from the Category drop-down menu and then pick the ETF from that group that best suits your needs.
However, the introduction of ETFs that track relatively small market segments means you can also use the performance tracker for spotting hot and cold segments. Here's how:
What's hot, what's cold
When you first open the performance tracker, it displays the top 20 ETFs based on 52-week returns, with the highest returning funds at the top.Last weekend, it listed UltraShort Real Estate ProShares (SRS, news, msgs) and UltraShort Financials ProShares (SKF, news, msgs) at the top. As the names imply, these funds attempt to emulate the returns you would have achieved by shorting the designated index. (Short sellers profit if the securities that they've shorted drop in price; they lose money if the stocks go up.)
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The ins and outs of ETFsJeffrey Ptak, Morningstar's director of ETF analysis, covers the basics on this rapidly growing investment type.
However, you need to know that the UltraShort ProShares funds try to double an index's price movement. That is, if the index drops 10%, the UltraShort fund would go up 20%, and vice versa. Thus the returns shown for the UltraShort funds overstate the movement of the tracked indexes.
Nevertheless, those two listings tell you that real-estate and financial stocks took a big hit last year, which isn't exactly hot news. After the two short ETFs, the report listed various emerging markets and the steel, energy and gold sectors as being the hottest performers over the past year.
Continued: What's happening now?
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