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Basic resources and cyclical equities lead equity ETF surge

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The ETFS Russell 2000 Fund, which tracks small cap US equities, rose by 12 per cent in the week ending 13 March, leading a broad-based rise in ETF Securities’ equity exchange-traded fun

The ETFS Russell 2000 Fund, which tracks small cap US equities, rose by 12 per cent in the week ending 13 March, leading a broad-based rise in ETF Securities’ equity exchange-traded funds.

Equity markets rose sharply on market hopes that US financial sector losses could be lower than initially feared.

The ETFS Russell 2000 Fund outperformed the MSCI World Index rally by four per cent in the week ending 13 March. The top five ETF Securities’ equity ETFs have outperformed the MSCI World by 11 per cent on average since the start of 2009.

The ETFS Dow Jones Stoxx 600 Basic Resources Fund, which tracks basic resources companies, was the next best performing ETF last week, up 11 per cent.

Base metal prices have picked up recently as successive increases in Chinese manufacturing PMI and reports of Chinese manufacturer restocking have boosted market hopes that Chinese government expansion plans will put a floor under demand.

Basic Resources is the strongest Stoxx600 sector so far this year.

The pick-up in bulk resource demand has also been reflected in a 220 per cent rise since 1 December 2008 in the Baltic Dry Index, which tracks shipping freight rates. The Baltic Dry Index is not directly tradable, but returns over the past ten years have had a strong correlation (0.7) with the ETFS Russell Global Large Cap Shipping Fund, indicating there could be scope for some catch-up.

ETFS S-Net ITG Global Agri-Business Fund is the top performing ETF so far in 2009 and has risen by seven per cent over the past three months, compared to a 13 per cent drop in the MSCI World Index.

ETF Securities says agriculture’s low correlation to the business cycle and strong long term supply-demand fundamentals are underpinning its solid performance.

Meanwhile, the ETFS Russell Global Gold Fund, which tracks the word’s biggest gold miners, is up 55 per cent since 31 October 2008. This compares to a 19 per cent fall in the MSCI World Index over the same period.

ETF Securities says gold demand is likely to remain strong this year with high political, economic and financial uncertainty driving demand for safe haven assets and defensive themes. Investment in gold miners provides leveraged exposure to underlying gold prices, with miners profiting from stronger revenue and falling costs.

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