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4 ETFs to Watch When the Fed Speaks

If the Federal Reserve signals that it is going to keep interest rates low, then you can expect that TLT will continue to rise or remain steady. Eventually, though, rising rates will return, putting downward pressure on long bonds.

If you are concerned about the prospect of rising interest rates, you can consider moving to the shorter end of the yield curve by purchasing the iShares Barclays 1-3 Year Treasury Bond Fund (TBF). This ETF has a much lower average duration than TLT, and a lower yield as well.


Alternatively you can also look at purchasing a rising-rate fund, such as the ProShares Short 20+ Year Treasury Bond Fund (TBF), to hedge your fixed-income exposure.

Precious Metals

Another segment of the economy that is often affected by Federal Reserve commentary is the precious metals sector. The SPDR Gold Shares (GLD) tracks the spot price of gold bullion and can often see large asset flows based on global sentiment. Typically investors flock to gold during times of economic uncertainty as a type of safe-haven play, similar to Treasury bonds. Gold is also known as an inflationary and currency hedge because of its physical asset qualities.

This fund has recently undergone a great deal of price compression due in large part to investors shunning precious metals in favor of risk assets, such as stocks. Still, if we see a return of rising interest rates or a decline in stock prices, I would not be surprised to see a reversal in the recent gold trend that would initiate a new bull market in the yellow metal.

Currencies

The last recommendation I have for your Fed watch list is the PowerShares US Dollar Bullish Fund (UUP). This ETF tracks the daily price movement of the U.S. dollar index, which pegs the value of the U.S. dollar against a basket of other foreign currencies.

Most notably, we have seen a rise this year in UUP as the CurrencyShares Euro Trust (FXE) and the CurrencyShares Japanese Yen (FXY) have fallen in value.

However, these price trends are subject to change based on the long-term repercussions of quantitative easing and the reactions of foreign governments' fiscal policies. UUP is definitely an index that you want to watch as it relates to the international investments in your portfolio.

The Final Word

It will be interesting to see what the next phase of the market will bring and how these ETFs will be affected by the latest comments from Fed Chairman Bernanke. One thing is clear: The investment landscape is constantly evolving, and by staying on top of these trends you can make insightful portfolio decisions that will enhance your returns.

At the time of publication the author had no position in any of the stocks mentioned.

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

David Fabian is currently a Managing Partner at Fabian Capital Management, a fee-only registered investment advisory firm specializing in exchange-traded funds. He has years of experience constructing actively managed growth and income portfolios using ETFs. David regularly contributes his views on wealth management in his company blog, podcasts, and special reports. Visit www.FabianCM.com to learn more.

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