Hackett Advisors in the News

Internet, Cotton And Energy ETFs Lead First Quarter

Posted 03/31/2011 05:32 PM ET

A strong uptrend lifted most ETFs in the first quarter and pushed the leaders even higher, while Japan's epic tragedy and political upheaval in the Middle East pummeled an unlucky few.

The leaders — including cotton, Internet software and energy ETFs — held their ground during the February to March correction and never closed below their 50-day moving averages. IPath DJ-UBS Cotton ETN (BAL), up 42.7%, led all non-leveraged ETFs in Q1.

Farmers globally trying to take advantage of high prices are dedicating more land to cotton over other crops. That will sharply increase supplies next year and send prices plunging, says Shawn Hackett, president of Hackett Financial Advisors.

This year's U.S. cotton acreage is projected to increase 15% from last year to 12.6 million acres, according to the U.S. Department of Agriculture's Prospective Plantings report released Thursday. "Cotton acreage increases are expected in every state," the USDA said.

B2B Internet HLDRs (BHH), up 39.8% in Q1, owes its performance to a 92% weighting in Ariba (ARBA) .

The business software maker has accelerated sales growth the past four quarters from flat to 3% to 11% to 13% to 20%. Analysts expect it to grow sales by 19% to 30% the next four quarters. But earnings growth has decelerated the past three quarters from 27% to 12% to 11% to -5%.

BHH has an 8% weighting in Internet Capital Group (ICGE) .

BHH and BAL share an IBD Relative Strength Rating of 97, indicating they're rising faster than 97% of issues in the market. They also share a B Accumulation/Distribution Rating, which shows institutions are heavily buying shares.

PowerShares S&P SmallCap Energy (PSCE) vaulted 25% as oil climbed 17% in the quarter. Oil ended the quarter at a 2 1/2-year high of $106.72 a barrel, as the greenback weakened for a fourth straight month and civil unrest hampered production in Libya, Africa's third-largest oil producer.

Gulfport Energy (GPOR), ION Geophysical (IO) and Holly (HOC) led the portfolio with gains of 51% to 58% for the quarter. Gulfport's earnings have ranged from 283% to 52% the past four quarters, while sales fired up 41% to 54%. It has an RS Rating of 99 and an Acc/Dis Rating of A-.

SunTrust Robinson raised its price target on Gulfport shares Thursday and rated them a buy. The company sold 4.8 million shares at $32 apiece. It intends to use the amount raised, about $73 million, to buy Utica Shale, for capital expenditures and to repay debt.

Biggest Losers

Global X Uranium (URA), down 27.5%, crashed the most of all non-leveraged ETFs following Japan's earthquake and tsunami, which ignited a nuclear crisis.

Investors dumped stocks of the nuclear fuel fund over concerns that countries would replace nuclear energy in favor of more politically safe fossil fuels.

Germany closed seven plants and Italy put a one-year moratorium on plans to revive nuclear energy. Japan has shuttered 11 facilities.


Contrarians contend the market overreacted and nuclear energy is the cleanest fuel and key to reducing carbon emissions.

IPath S&P 500 VIX Short-Term Futures ETN (VXX) fell 21.9% in Q1. The ETN, meant to profit from rising volatility in the S&P 500, has cratered 93% since it began trading two years ago owing to contango.

The ETN tracks a position holding short-term volatility futures and loses money when it sells the front-month contract to buy a later-month contract to maintain its position.

Market Vectors Egypt Index (EGPT) sank 20% in the first quarter as massive protests overthrew the president and the country shut down its exchange for nearly two months.

Van Eck halted issuing creation units of the ETF during that time, although shares continued to trade on the secondary market.

It has traded like a closed-end fund, with its price rising as much as 20% above its net asset value.



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