NEW YORK ( TheStreet) -- As developed market ETFs continue to separate in performance, ETF investors should allocate assets to benefit from strength and avoid weakness.

Japan, Australia and Canada are sources of strength, while Europe and the United Kingdom are facing serious financial problems.

On Monday and Tuesday, the differences were clear. The British pound and the euro sank in Monday trading, highlighting the continued weakness across the Atlantic, while Australia's central bank raised interest rates to 4% today as the economy continues to recover, with unemployment at only 5.3%.

The divergent returns represent a continuation of current trends. Resource exporters Australia and Canada have recovered nicely from the financial crisis, while Europe and the U.K. seemed poised to stumble into another round of adversity. ETF returns have widened recently, and these trends could last for several months.

CurrencyShares Australian Dollar ( FXA) has gained 0.5% this year and the CurrencyShares Canadian Dollar ( FXC) is up 0.8%. By contrast, the CurrencyShares Euro ( FXE) is down 5.3% and the CurrencyShares British Pound ( FXB) has declined 7.3%.

This currency divergence is also evident in the equity ETFs. iShares MSCI Australia ( EWA) and iShares MSCI Canada ( EWC) have returns just below and above 0%, respectively, while iShares MSCI EMU Index ( EZU) and iShares MSCI United Kingdom ( EWU) have suffered losses of 10% and 6%, respectively.

Meanwhile, Japan continues to quietly outperform in 2010. CurrencyShares Japanese Yen ( FXY) is up 4.4% this year and iShares MSCI Japan ( EWJ) is up 3.1%, despite having Toyota ( TM) as its No. 1 holding.

As long as the Greece debt problems remain unresolved, the euro is likely to remain weak in the near term. Even if a bailout can be agreed upon (and Germany has yet to agree to one), it could mean a weaker euro in the long run, if other countries are bailed out.

The most direct way to play the weaker euro is with ProShares UltraShort Euro ( EUO), which offers two times the daily inverse of the euro versus the U.S. dollar. A more indirect way to play the euro weakness is with PowerShares DB U.S. Dollar Bullish Index ( UUP).

The drawback of UUP is that it only has 57.6% inverse exposure to the euro. The 13.6% of the index in the Japanese yen has worked against it, but the greater weakness in the British pound, which accounts for 11.9% of the index, will benefit UUP.

The pound sank on Monday, with explanations for the slide in the pound ranging from the purchase of AIG's Asian life insurance business for $35.5 billion to upcoming elections and the fiscal deficit. Included in Prudential's (U.K.) offer for AIG is $25 billion in cash. It's possible the firm immediately hedged its position in the market.

Britain's budget deficit is nearly as much as Greece's, but the country does not face as dire a crisis yet because the pound can adjust to Britain's economic situation.

Nevertheless, investors expecting fiscal discipline from a new Conservative-party led government (an election is expected in May) are readjusting their forecasts because the Conservative's lead has been cut to just two points over the Labour party.

This suggests that the Conservatives could lose, or in the event of a close victory, they will have little ability to maneuver with a slim majority. If this has been the cause for the pound's slip in recent weeks, it could remain weak for several more.

-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion did not have a position in any of the funds mentioned.

Don Dion is president and founder of Dion Money Management, 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.