NEW YORK (
) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his
blog, anticipating which ETFs will be in play next.
Here are three of his blogs from the past week.
Someone Should Turn the Ignition on an Auto ETF
Published 8/6/2010 11:21 a.m. EDT
When it comes to big purchases, homes and cars make the top of the list for most Americans. While the ongoing weakness in the housing market has some readers questioning the recovery, I hope you'll take a second to think about just how well the auto industry has bounced back -- despite economic obstacles like unemployment.
Americans may not be ready to delve back into the housing market (despite rock-bottom rates), but many are making that other large purchase. If you really want to feel better about the recovery, think about how far
have come since the depths of the market meltdown.
But extensive government involvement and new pressure from the Obama administration (President Obama said in a speech yesterday that taxpayers would be reimbursed by GM) may make American auto makers an unpalatable investment for some. The companies I've been following are the ones that supply parts to auto makers and repair shops around the globe. Whether people are repairing their old cars or shopping for new ones, these component companies will continue to benefit.
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Bridgestone Tire, which is based in Tokyo, announced this morning that the company has returned to profit and is now raising its outlook. Similarly bright reports from Michelin and
Goodyear Tire & Rubber
have echoed the recovery made by automakers.
Fund investors interested in tracking the auto market have thus far been limited to the Fidelity Select Auto Fund (FSAVX), a mutual fund that tracks automakers like
, along with parts suppliers like
. FSAVX has gained more than 16% in the last 30 days.
I'm anxious to see an ETF like FSAVX that offers well-balanced exposure to the auto industry. Back in April, I wrote a post about how Direxion -- famous for leveraged funds like the
Direxion Daily Financial Bull ETF
Direxion Daily Financial Bear ETF
-- had filed to launch a fund called
Direxion Auto Shares ETF.
While the fund has yet to launch, I hope that someone will step up to the plate and offer an ETF with auto exposure in the near future. This is one sector on the run.
At the time of publication, Dion Money Management held no positions in the securities mentioned here.
Switch Commodity Allocation
Published 8/6/2010 5:50 a.m. EDT
As markets brace for a slower economic recovery around the world in the second half of the year, investors should avoid commodity ETFs that perform in high correlation with expected economic activity.
This means funds that track commonly used building materials such as copper, will likely not impress with performance going forward. An ETF that tracks a commodity used for energy production, such as coal, is also likely to underperform.
So this rules out options such as
Market Vectors Coal ETF
Dow Jones-AIG Copper Total Return ETN.
Meanwhile, though, opportunities are being presented in ETFs that track agricultural commodities.
Specifically, a drought in Russia has persisted to the point where the country has halted export of wheat so as to ensure domestic needs are met. This puts upwards pressure on prices of wheat in markets around the world, since Russia is normally a large exporter.
This helped to rocket the
Dow Jones-AIG Grains Total Return ETN
upwards yesterday, and also contributed to a rise in the broader
PowerShares DB Agricultural Fund
DBA tracks several agricultural commodities and is affected to an extent by the trends in wheat. This diversified exposure of DBA makes it a good pick for more conservative investors that may be concerned about a short-term slide backwards in wheat prices after their recent run.
Overall, switching from industrial commodities to agricultural ones right now is a logical play so as to not suffer from indications the economic recovery might be slowing. DBA is the best way to do this for investors that don't want to bet on a single agricultural commodity that may fluctuate wildly.
At the time of publication, Dion Money Management owned none of the securities mentioned.
How Low Will They Go?
Published 8/5/2010 2:16 p.m. EDT
Mortgage rates have dropped to their lowest-recorded level for the sixth time in seven weeks, with the average rate on the 15-year-fixed loan now at 3.95%. Pricing at this level should be attractive to potential homebuyers -- it's the lowest rate recorded since Freddie Mac began tracking rates in 1971.
But are low rates enough to get people out of rentals (or their parents' basements) and into one of the many homes for sale across this nation? Are they low enough to overcome the expiration of government tax credits? Maybe not.
Better-than-expected earnings from homebuilders, such as
, seem to reflect a surge of deal-closings prior to the April 30 expiration of the homebuyer tax credit. But despite recent results, the
iShares Dow Jones US Home Construction ETF
fell more than 22% in the three-month period ending August 4.
While many sellers tell harrowing tales about "underwater" homes and desperate deals, there's still a gap in expectations between buyers and sellers -- no matter how low rates go. A number of homeowners may be in dire straits, but government programs have helped people refinance and reconfigure, allowing them to stay in their homes rather than engage in a forced sale. While I firmly believe that rock-bottom rates will help to move the housing market, prices may have to go even lower in some areas.
Is it worth investing in housing as mortgage rates continue to fall and the reality of the economic recovery continues to be called into question? I think so. I own both the
iShares Dow Jones US Real Estate ETF
iShares Cohen & Steers Realty Majors
. These are broader ETFs with REIT exposure. For the long-term investor, I still believe that these funds are an attractive way to track both the broader market's recovery and improvement in the housing market.
It may be shocking to see mortgage rates drop once again, but I wouldn't be surprised to see them go even lower in the short term. With so many factors, including unemployment, influencing the housing market, short-term swings are difficult to predict. I still like IYR and ICF for longer-term exposure, but it may take more than low rates to stimulate real estate.
At the time of publication, Dion Money Management was long ICF and long IYR.
A special note from Don: Put simply, I want to help you profit from ETFs.
You don't have to be an expert trader -- there are potential profits for investors at every level. And I think there's no better way to jump into the world of ETFs than through my brand-new service,
TheStreet ETF Action by Don Dion
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.