'Strategy ETFs' Outperforming Broader U.S. Market

I have favored the use of several strategic ETFs in this column. In particular, I have advocated participating in "yen carry trade" profits from the use of the Powershares DB Currency Harvest Fund (DBV).

I also like the historical record of the sector rotation strategy. It follows that I have been upbeat about incorporating the Claymore/Zacks Sector Rotation Fund (XRO) into some portfolios.

However, I have offered a much chillier reception to other "ideas" that have hit Wall Street. Due to Claymore's success with XRO above, the ETF provider felt compelled to serve up an unproven "rotation" investment like the Claymore/Zacks Country Rotation Fund (CRO).

(I suppose it could be worse. They could come up with zanier ideas like "dividend rotation" and "insider buying trends.")

Oh, that's right... Claymore did introduce investments for these concepts/strategies as well. There is the Claymore/Zacks Dividend Rotation Fund (IRO) and the Claymore/Sabrient Insider Fund (NFO).

Keep in mind, none of the investments constitute separate asset classes. We're not discussing the possibility of diversifying across stocks, bonds, commodities or currencies; rather, we're talking about allocating money to a concept that may or may not have merit going forward.

In all fairness, though, these strategic funds are running rings around the broader US. market. With the exception of the Claymore/Zacks Dividend Rotation Fund (IRO) which has just a few days of data, each of the remaining 4 "Strategy ETFs" are out-hustling the S&P 500 SPDR Trust (SPY).

(Note: The Country Rotation Fund has only been in existence since mid-July. Still, back-testing the index over the one-year time frame makes it the biggest gainer of the investments in the chart above.)

Believe me, I am not suggesting that the "Strategy ETFs" are better than broader stock market index investing. On the other hand, I am pointing out the reality that diversification these days may require a little more strategy than plotting a portfolio on the efficient frontier.