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Economically Sensitive ETFs Have Suffered Since the Fed's Latest Move

Stocks in this article: VGT XLI IYM CIU EMB

And it's not just a number of sector ETFs that are having a hard time since Fed Chairman Ben Bernanke shocked and awed the financial world. In reality, growth-oriented small companies are feeling the sting, as evidenced by the poor showing of iShares Russell 2000 Growth (IWO). Similarly, corporations tied to the well-being of the economic cycle have also been sputtering, as evidenced by weakness in PowerShares S&P 500 High Beta (SPHB).

Need a nail in the proverbial coffin? On a month-over-month basis, investors appear to have rotated back into safer, less-volatile segments since the Fed went beyond confirming QE3 rumors to announce open-ended mortgage purchasing with money it will print electronically. Leadership is coming from utilities, tracked by the Select Sector Utility SPDR (XLU); health care, tracked by the Select Sector Health Care SPDR (XLV); and the ever-so-tame S&P 500 Low Volatility Fund (SPLV). (I included these three ETFs in the table on the preceding page.)

Does this mean that the Fed's initiative to revive a stagnant economy will fail? I don't think anyone can predict the future. That said, investors for the most part bought the central bank reflation rumors in July and have been selling the news in September and October.

In my estimation, the best risk-reward ETFs reside in the middle of the spectrum. Assets that have relatively wide historical yield spreads with comparable Treasuries are still attractive. This includes vehicles like iShares Intermediate Corporate Credit (CIU), iShares Emerging Market Corporate (EMB), PowerShares Emerging Market Sovereign (PCY) and PowerShares Preferred (PGX).

Additionally, Asia Pacific ETFs are still in a "buy the rumor" stage. In essence, China has plenty of wiggle room on both fiscal and monetary policy while investors expect that China will take action to stimulate its economy. Not surprisingly, some of the best month-over-month performers are Asia Pacific ETFs, including iShares MSCI Philippines (EPHE), iShares MSCI New Zealand (ENZL) and iShares MSCI Malaysia (EWM). Consider getting ahead of the curve with China's neighbors.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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