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.
In the following three blogs from the past week Don advised investors to avoid certain homebuilder ETFs, said biotech remains a bright spot in the uncertain health care sector and noted the strength of well-performing developed-market funds.
Avoid Homebuilder ETFs for Now
Posted 02/24/2010 9:41 a.m. EST
Despite improved numbers from
, investors should continue to avoid homebuilder ETFs such as
SPDR S&P Homebuilders ETF
iShares Dow Jones U.S. Home Construction Index Fund
Although Toll trimmed losses during its first fiscal quarter, revenue still fell, despite the company's "luxury" status. Other top holdings in the homebuilder ETF group, such as
, face the same fundamental challenges as Toll.
Since ITB is a more top-heavy fund than XHB -- TOL makes up 7.47% of ITB's portfolio and 3.79% of XHB's portfolio -- it will be the more volatile of the two today, whether investors feel encouraged or sell on the news.
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The chart at the end of this article shows how ITB's top-heavy lineup has separated this fund as some investors bet on a recovery among headlining homebuilders.
Last week, I
to consider the fundamentals when it comes to homebuilders. No matter what the charts or earnings reports say, times are undeniably tough. Consumers are just beginning to dig back in by treating themselves to a
sandwich. With unemployment so high, it will be a long time before people rush out to buy homes again.
For now, investors should shy away from the homebuilders. If you're looking to bet on a slow consumer recovery, check out a
An Obama-Proof Health ETF
Posted 02/24/2010 10:32 a.m. EST
As President Obama prepares for his health care summit tomorrow, a cloud of uncertainty continues to envelop the various subsectors of the industry.
On Monday I suggested that the release of Obama's new health care proposal could derail the
iShares Dow Jones U.S. Healthcare Provider ETF
in the short term, and that
investors should buy on the dips.
It still seems highly likely that health care reform will be met with continued resistance, and once Republicans get a chance to add their two cents at the health care summit tomorrow, it's likely that IHF could continue its rally.
Another long-term health care play that should be immune to continued health care debate is biotechnology. Developing that one-in-a-million drug is like hitting the lottery, and these highly specialized drug developers are less prone to the generic pressure felt by other pharmaceuticals.
The biotech industry is tailor-made for the ETF model. Since it is highly likely that a number of biotech firms will either boom or bust, the ETF model allows you to gain access to a portfolio of companies and minimize security-specific risk. This would be an extremely difficult subsector to go stock-picking in.
While several ETFs allow you to access biotech -- including the
SPDR Biotech ETF
iShares Nasdaq Biotechnology Index ETF
-- I would suggest a smaller fund for investors looking for a strong play on this health care slice.
First Trust NYSE Arca Biotech Index ETF
has continued to lead peers like XBI and IBB in 2010. Its strong, well-balanced portfolio of biotech companies has helped FBT outperform top-heavy IBB and the more heavily traded XBI.
Top holdings in FBT's portfolio include
Some traders may find FBT's moderate liquidity problematic on large orders, but with an average daily trading volume of 50,000, FBT has adequate liquidity for the average trader.
The health care industry will continue to fluctuate as reform is drafted, met with opposition and drafted once again. The innovative area of biotech, however, continues to look like a solid long-term buy in an uncertain sector.
Don't Forget Developed Market ETFs
Posted 02/23/2010 11:03 a.m. EST
While individual country ETFs can help investors gain targeted access to emerging markets, investors need to keep in mind well-performing developed-market funds.
In a post yesterday, I
the strength of single-country funds such as the
iShares Thailand ETF
iShares Taiwan Index
as an indicator of shifting trends in emerging-market performance.
While strong emerging-market picks can help to bolster a well-rounded portfolio, investors should also remember to include strong developed-market picks to capture a mix of economies.
Last week I
iShares MSCI Japan Index Fund
continued to advance despite the controversy surrounding top holding
Like Tiger Woods' press conference, pre-released testimony from Toyota's James Lentz will likely do little to comfort drivers who have bet on Toyota's brand. Sticky accelerators are a dangerous threat, and Toyota's response was admittedly slow.
Nevertheless, EWJ's resilience in light of Toyota's challenges should perk up the ears of U.S. investors. EWJ is in the black year to date, up 1.44%, even though TM makes up 5.21% of the fund's holdings. Other top holdings include Mitsubishi, UFJ Financial,
Stateside, the solid dividend stocks in the
iShares Dow Jones Select Dividend Index
have helped investors net a 5.37% return during the three-month period ending Feb. 22. During the same three-month period, the
PowerShares International Dividend Achievers ETF
rose less than 1%.
The message for ETF investors is simple: Get past the noise.
Gold, Greece and garbage bonds are all distracting in a volatile marketplace. Now is not the time to forget the fundamentals.
When building a well-diversified U.S. and international portfolio, don't forget to include the developed markets.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management owned iShares Dow Jones Select Dividend Index.
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.