Skip to main content

NEW YORK (ETF Expert) -- People are feeling better about spending money. Similarly, investors are feeling better about risking it. The problem is, whenever people begin to feel wealthy due to a faulty premise (i.e., the U.S. Federal Reserve can keep buying bonds to depress interest rates without longer-term implications), they may spend more than they have. Others may blindly chase investment gains without recognizing the actual risks.

For example, all of the hoopla surrounding the three-month monster rally for U.S. stocks (9%-10%) ignores a disconnect with markets around the world. Recent asset class performance data from Bespoke Research show the largest emerging-market economies (e.g., Brazil, Russia, India, China, etc.) collectively logging a loss of 4%; meanwhile,

Vanguard MSCI Europe

(VGK) - Get Vanguard FTSE Europe ETF Report

only managed a meager 1% in the first quarter.

And there's more. The massive quantitative easing by Japan is causing the currencies of other export-dependent economies to appreciate against the yen. This may have an adverse impact on those export-dependent nations. For example, currency concerns are a contributing factor in the declining fortunes of

iShares MSCI South Korea

(EWY) - Get iShares MSCI South Korea ETF Report


Keep in mind, the price gains that many have enjoyed in broad-based U.S. equities may be transitory. For one thing,

the rest of the world's equity markets have yet to go along for the ride

. Secondly,

bonds are once again picking up some traction

. In addition, U.S. stocks experienced corrective activity in the second quarter of 2010, 2011 as well as 2012, while the

S&P 500

has pulled back at least 5% in the first 5 months of every calendar year since 1996.

TheStreet Recommends

Naturally, a selloff may be an occasion to put sidelined cash back to work. The question is ... which assets might be worthy of purchasing when it happens? Perhaps it will be those ETFs that do not stumble as severely when European bank solvency dominates the headlines.

Consider the pattern in 2012. Last year,

iShares MSCI European Financials

(EUFN) - Get iShares MSCI Europe Financials ETF Report

fell a bearish 27% from a mid-March peak through a low in June. The

SPDR S&P 500 Trust

(SPY) - Get SPDR S&P 500 ETF Trust Report

fell a more modest 8.5% in a gloomy May-June correction. In contrast,

iShares FTSE NAREIT Mortgage REIT

(REM) - Get iShares Mortgage Real Estate ETF Report

actually gained 8%-plus in the second quarter of 2012, while

Vanguard Utilities

(VPU) - Get Vanguard Utilities ETF Report


PowerShares Pharmaceuticals

(PJP) - Get Invesco Dynamic Pharmaceuticals ETF Report

both picked up roughly 5.8%.

If the pattern holds -- with U.S. economic growth potentially slowing in the second quarter and European bank risks rising in the second quarter -- the beneficiaries tend to be domestic noncyclical segments. Granted, noncyclical sectors may be somewhat expensive relative to earnings. However, when a selloff in U.S. and global stock indices does arrive, investors may continue to place a premium on safe growth/income.

Another way to pursue safer growth and income when the next pullback occurs?

WisdomTree High Yielding Equity

(DHS) - Get WisdomTree U.S. High Dividend Fund Report

. This exchange-traded tracker barely budged when European financials dominated the "sell-in-May" stories in 2012. The


30-day yield of 3.6% is flanked by its top four sectors: Health Care, Consumer Staples, Utilities and Telecom.

Follow @ETFexpert

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.

Gary Gordon reads:

Real Clear Markets

Jeff Miller


Charles Kirk

On Twitter, Gary Gordon follows:

Jonathan Hoenig

Doug Kass

Hard Assets Investor