Is This ETF Pregnant With Next Hot Sector?

If you want to figure out which sector will be the next hot investment, you could try reams of research and hours of nonstop market study. But few individual investors have that kind of time.

Claymore Securities hopes its Claymore/Zacks Sector Rotation Fund (AMEX: - ) is an easier way to get the same result.

The fund tracks the performance of the Zacks Sector Rotation Index. Rebalanced quarterly, the exchange traded fund rotates its investments between sectors to try and beat the market.

It's the first of its kind and is more than holding its own. With an Investor's Business Daily Relative Strength Rating of 67, the fund was up 5% last week and the third best-performing long ETF. It's hugging its 10-week moving average line, despite a heavy-volume sell-off in late July and a highly volatile couple of weeks in the general market.

But because it's not yet a year old, the fund doesn't have a full cycle to test it.

Picking Stocks

The index's 100 stocks are culled from among the 1,000 largest companies traded on U.S. exchanges. Zacks Investment Research analyzes the companies by weighing returns, price, growth, estimates and macroeconomic factors. Companies that make the list are believed to show a superior risk-return compared with the S&P 500.

While no stock will make up more than 5% of the ETF, the fund can sink as much as 45% into any one sector. That means targeting the right sector at the right time is crucial.

The most recent figures available show that as of May 31, the fund had 36% of its assets in financial services, 22% in health care and 20% in consumer services.

Industrial Stocks

Some 8% is invested in industrial materials, 5% in business services and 4% in energy. The remaining assets are split between consumer goods at 3% and software companies with 2%.

One of the ETF's best performers has been Deere (NYSE: - ), also one of the top holdings. The Moline, Ill.-based company, which has a brawny 92 RS, is one of the world's largest farm equipment makers. The stock hit its all-time high of 133.68 July 19 and is again nearing that marker.

On Monday, the company acquired China's Ningbo Benye Tractor & Automobile Manufacture Co. The move will expand the John Deere product line in China with more low-horsepower tractors.

Top holding Schering Plough (NYSE: - ) also has helped boost the fund. The Kenilworth, N.J.-based company is trying to acquire Akzo Nobel subsidiary Organan BioSciences. The Netherlands-based company makes health care products.

Not all of its top holdings are top performers, though. Goldman Sachs (NYSE: - ) has a 31 RS, and Kohl's (NYSE: - ) has a dismal 17.