Why I'm Skeptical About Claymore's New Country Rotation Fund

by: Gary Gordon

I remember when Claymore first introduced its Claymore/Zacks Sector Rotation Fund (NYSE:XRO). The investment sought to replicate the performance of the Zacks Sector Rotation index through the use of 100 common stocks or ADRs.

I liked the idea of the investment from the get-go. For one thing, the philosophy of sector rotation has many proponents. Moreover, the reputation of Zacks research in identifying high ranking stocks within chosen sectors has always had a certain appeal.

The Claymore/Zacks Sector Rotation Fund (XRO) has been quite profitable for investors since its inception in late September of 2006; in fact, it has garnered 22% in 9 1/2 months.

The goal of XRO is to overweight and underweight sectors to outperform market benchmarks like the S&P 500 Index on a risk-adjusted basis. Indeed, 22% in the time period handily beat the SPDR S&P 500 (NYSEARCA:SPY) 22% to 16%... give or take.

It's difficult to say whether the Claymore/Zacks Sector Rotation Fund (XRO) is riskier or less risky that the S&P 500; XRO hasn't been in existence for very long. Back-tested data on standard deviations show XRO to a be a bit more risky, and the current P/E of XRO is approximately 25. (The market itself sports a less expensive P/E price-tag of approx 17.) Finally, after the China drop in late February, XRO dropped nearly 11% in a week. (The broader domestic market fell about 7% in that week.)

All tallied, it's hard not to look at the Claymore/Zacks Sector Rotation Fund (XRO) as a winner. However, I can't help but wonder if the people at Claymore are pushing their luck with their latest introduction, the Claymore/Zacks Country Rotation Fund (CRO).

CRO began trading yesterday at a price point of 25. As of right now, the United Kingdom, Australia and Hong Kong have respective weightings of 25%, 12.8% and 10.7%. Singapore is fairly well-represented with a 7.5% weight.

The reason I am more skeptical about "country rotation" is that it doesn't have a rich history of rigorous study; actually, it doesn't have much of a history at all. At best, one might describe "country rotation" as a "work in progress."

That said, many new ideas become larger than life. In a world where international investing has become increasingly prominent, the Claymore/Zacks Country Rotation Fund (CRO) may soon find its niche. (Be careful, though. This one currently has 40% in one sector, "Financials").

Disclosure Statement: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

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