iShares S&P 100 Index (ETF) (AMEX:OEF)

The iShares S&P 100 Index Fund seeks investments in the U.S. large-cap stocks as represented by the Standard & Poor's 100 Index. It is one of the widely tracked blue chip indexes with coverage across a broad range of industries. The fund has total market capitalization of approximately $3.21 billion and trading at a price to earnings multiple of 14. Top ten holding accounting for about a third of the total corpus and the 100 stocks give a fair amount of diversification.

Holding of the fund is skewed toward the financial sector and information technology. Though the Fed has stropped interest rates hike, inflation seems to be above comfort level. Growth prospects for the information technology looks optimistic for internet related services whereas slowing economy and reduced IT spending due to seasonal factors hinder the growth prospects of the software and hardware.

Outlook for the U.S economy looks very cautious having a slow pace of growth compared to the previous year and major indices having a correction in the recent past. Inflation is expected to subside gradually and growth to pick up in the later half of 2007. Decision to keep the oil production at level current levels would support rising oil prices but puts the materials and utilities sector on the back foot. Health care and energy are the bright spots for the fund to cash on and the defensive nature of consumer staples would help in a slowing economy.

Being a representation of the profitable stocks with the strongest fundamentals has helped it keep its volatility at bay with the lowest standard deviation amongst its peers. Though it is not the cheapest ETF with an expense ratio of 0.20% it still looks impressive owing to the liquidity. The fund had returns of 18.22% in the previous year while its performance in the last five years doesn’t seem impressive lacking consistency. However the economic outlook for US is sending mixed signals with signs of recession setting in and better to avoid the fund for 2007.