Bleak-Time ETFs: Go Long Banks, Short Growth

It makes sense for investors to take a long-term position in bank stocks because they have been beaten down to such an extent that there are only two options left for any bank: 1) survive and increase in value in the next two to three years or 2) fail.

By using a diversified fund like the KBW Regional Banking ETF, investors can mitigate some of the risks associated with those banks that fail and yet profit from those that will survive and prosper. It is likely that the banking sector will have problems for most of 2009, so this sector will be volatile. However, if investors park money for the long term, then rewards will present themselves as the credit markets stabilize and recover.

On the short side, the words "growth" and "U.S. economy" offer a contradiction in terms. There is no growth, and, in fact, the U.S. economy is likely to shrink noticeably. With this in mind, shorting growth stocks offers an opportunity to profit from economic weakness going forward.

ProShares Ultra Short Russell 2000 Growth can provide such a vehicle to do this, and it does so with an all-or-nothing approach, or more aptly put, a double-or-nothing approach. It seeks to magnify any downward movement in the Russell 2000 Growth Index by a multiple of two.

So the strategy is to go long banking and short growth.

Two ETFs: Long Banks-Short Growth
Fund Name	Ticker	Current Grade	Previous Grade	Three-Month Return	Category
KBW Regional Banking ETF	KRE	A-	C-	39.65	Sector - Financial Services
ProShares Ultra Sht Rus 2000 Growth	SKK	A	C-	22.48	Growth - Domestic
Source: TheStreet.com Ratings