First Half of 2006 Sector Performance: Clean Energy, Transportation Lead While Internet, Biotech Lag

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Includes: BBH, GLD, HHH, IYT, OIH, PBW, SMH
by: Nick Perry

Nick Perry (Schaeffer's Investment Research) submits: With this week marking the end of the first half of the year, I thought it would be interesting to change up the pace of this column and explore what groups have led and lagged so far this year (click to enlarge):

Because they were just rolled out in recent months, I had to omit the iShares Silver Trust (NYSEARCA:SLV) and the US Oil Fund (NYSEARCA:USO) from this graph, but the rest of my usual list is represented. The action so far this year has been led by an eclectic mix of clean energy stocks, transportation stocks, gold, and oil service stocks. On the downside we find Internets stocks clearly standing out as the weakest group, followed by biotechnology and semiconductors.

For additional perspective, the bullets below show how the ETFs listed above had faired during the last six months of 2005. In other words, it shows how they had been performing before this year's move.

Prior Six-Month Returns for This Year's Top Performing Sector Exchange-Traded Funds:

* PS WilderHill Clean Energy (NYSEARCA:PBW) +9.6%
* iShares DJ Transportation Average (NYSEARCA:IYT) +19.4%
* streetTRACKS Gold (NYSEARCA:GLD) +18.2%
* Oil Service HOLDRS (NYSEARCA:OIH) +26.2%
* Telecom HOLDRS (NYSEARCA:TTH) -3.7%
* SPDR-Energy (NYSEARCA:XLE) +12.4%
* PS Oil Services (NYSEARCA:PXJ) n/a
* iShares DJ U.S. Energy (NYSEARCA:IYE) +10.5%
* iShares GS Natural Resources (NYSEARCA:IGE) +15.7%
* Wilshire REIT Fund (NYSEARCA:RWR) +3.1%
* iShares DJ U.S. Telecomm (NYSEARCA:IYZ) -2.5%
* iShares C&S Realty Majors (NYSEARCA:ICF) +5.5%

Prior Six-Month Returns for This Year's Bottom Performing Sector Exchange-Traded Funds:

* SPDR-Health Care (NYSEARCA:XLV) +1.5%
* PS Building & Construction (NYSEARCA:PKB) n/a
* iShares GS Technology (NYSEARCA:IGM) +8.9%
* iShares GS Semiconductor (IGW) +14.7%
* iShares GS Software (NYSEARCA:IGV) +3.9%
* Software HOLDRS (NYSE:SWH) +5.2%
* iShares Lehman 20+ Year Bond (NYSEARCA:TLT) -4.1%
* iShares Nasdaq Biotech (NASDAQ:IBB) +13.1%
* PS Biotechnology & Genome (NYSEARCA:PBE) +15.0%
* Semiconductor HOLDRS (NYSEARCA:SMH) +8.2%
* Biotech HOLDRS (NYSEARCA:BBH) +19.5%
* Internet HOLDRS (NYSE:HHH) +21.2%

This list doesn't offer much in the way of broad trends, but there are a few points I found interesting. The first is that a few groups saw last year's momentum carry into this year. The IYT, GLD, and OIH showed strength in the last half of 2005 and have been among the leaders this year. The second is that a few groups have seen a strong reversal this year. The BBH and HHH showed strong performance in the second half of last year, but now take the bottom two slots for this year's performance. The last point involves the lackluster action in Health Care. The XLV was flat in the last half of 2005 and has been a laggard this year.

I point these out because it gives me a few broad areas to focus on in terms of momentum and trends. The first group has seen its momentum and trend continue while the second appears to be staging a reversal. Meanwhile, conventional wisdom suggests that healthcare stocks should have a defensive quality but the price action suggests weakness.

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