ETFs for Times of Low Growth

Pimco's Bill Gross, in his December 2009 missive, has advocated investing in the utilities sector as a way of playing a future economic environment that he sees marked by low growth.

When it comes to ETFs, in my view, based on momentum, this sector is the weakest of them all. I have found that utilities ETFs, such as iShares S&P Global Utilities (JXI - commentary - Trade Now), WisdomTree International Utilities (DBU - commentary - Trade Now), iShares Dow Jones U.S. Utilities (IDU - commentary - Trade Now), PowerShares Dynamic Utilities (PUI - commentary - Trade Now) and Utilities Select Sector SPDR (XLU - commentary - Trade Now) all have similar charts and appear to be facing strong resistance stretching back to October 2008.

Gross bases his call to action on the idea that holding utilities companies opens the doors to strong yields. However, in my opinion, while IDU boasts a 4% yield, the sector's overall weakness raises concerns about long-term performance.

Instead, investors eyeing strong yields may want to take a look at the JP Morgan Alerian MLP Index ETN (AMJ - commentary - Trade Now). This ETN provides investors with yields of more than 6% and should outperform IDU in the near future.

Another ETF play for investors who agree with Gross's low growth forecast would be a consumer goods ETF, such as the iShares Dow Jones U.S. Consumer Goods Sector Index Fund (IYK - commentary - Trade Now), which I currently hold the fund in my ETF Action portfolio. Although it lacks as large a yield as IDU and AMJ, IYK has a better chance of upside in the short and long term, in my view.

IYK's index is made up of some of the world's most recognizable firms. Its top ten holdings include Coca-Cola (KO - commentary - Trade Now), Proctor & Gamble (PG - commentary - Trade Now), Phillip-Morris (PM - commentary - Trade Now) and Colgate Palmolive (CL - commentary - Trade Now). The essentials and staples these companies produce will likely ensure good performance even in a low growth environment.

At the time of publication, Dion was long IYK.

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At the time of publication, Dion was long IYK.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.