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ETFs Poised for a Possible 'Pop'

In any significant market downturn, smart investors will be looking to get well-positioned to capture upward movements during the recovery.

It is subject to debate whether the market's recent progress is a sign that the worst is behind us. If it does turn out that we're entering a period of a strong market recovery, there are some areas in which it may be smart to have some money.

"Those that have been the most depressed" are the best areas in which to be invested, says Mark Luschini, chief investment strategist for Janney Montgomery Scott.

Two areas that Luschini believes have good upside potential if the market is to see a prolonged recovery are financials and consumer discretionary.

ETF investors looking to position themselves in these areas have several options. On the financials front, there are funds to consider such as the Financial Select Sector SPDR (XLF), the Vanguard Financials ETF (VFH) and the iShares Dow Jones U.S. Financial Sector (IYF).

These funds each have dividend yields between 3% and 4% and have top holdings such as Bank of America (BAC), JPMorgan Chase (JPM) and American International Group (AIG).

As for consumer-discretionary ETFs, investors could look to the Vanguard Consumer Discretionary ETF (VCR), the PowerShares Consumer Discretionary Fund (PEZ) or the Consumer Discretionary SPDR (XLY).

These funds have top holdings such as McDonalds (MCD), Nike (NKE) and Walt Disney (DIS).

Joe Battipaglia, market strategist at Stifel Nicolaus, agrees with Luschini on the upside potential for financials.

"If we were to come out of a recession, financials would obviously be a big performer because they have been so beaten up," he said. "I also think two other areas that would do well are REITs and high-yield bonds because of their spreads relative to Treasuries."

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