Five Sector Funds You'll Need in 2007

The first ETF that I can find was offered on the Toronto Stock Exchange in 1990, but the concept didn't really start to get rolling until the first SPDR was launched on the American Stock Exchange in 1993. SPDRs, or Standard & Poor's depositary receipts, are ETFs that track the S&P 500, other indices or particular industries. By last August, assets at U.S. ETFs had climbed to $335 billion.

What's the attraction? For the first time, ETFs give the individual investors the ability to execute, at a reasonable cost, the kind of basket-trading strategies that professional investors, with their computers and huge trading volumes, have used for years. Want to go long precious-metals stocks? There's an ETF or two or three that let you do just that for a commission of $10 or so.

ETFs are an unfamiliar tool to many investors but one worth adding to your toolbox. Especially because I think they'll come in handy in 2007. Here are five ETFs that I'd keep right at hand as 2007 unfolds. In each case, I've also briefly sketched in my reasons for thinking why this tool could be employed at a profit in 2007.

Oil

Why: In 2007, with OPEC set to cut production again in February and U.S. inventories projected to show an 82-million-barrel decline -- more than five times the average fourth-quarter decline over the last five years -- the odds are good that we'll see a strong move up in oil prices again in the first quarter of 2007.