Dion's Weekly ETF Blog Wrap

NEW YORK ( TheStreet) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog, anticipating which ETFs will be in play next.

Here are three of his blog posts from the past week:

What Probe Means for China ETFs

Published 12/21/2010 3:21 p.m. EST

An SEC probe into U.S.-listed Chinese firms could put some ETF investors at risk.

U.S. listed Chinese ETFs fall into one of two categories: ETFs that track Chinese ordinaries or ETFs that track U.S.-listed Chinese companies (American depositary receipts and other receipts).

While the investigation is just starting, it is likely that the ETFs that would be the most impacted would be funds that fall into the latter category.

For example, the PowerShares Golden Dragon Halter USX China Portfolio Fund ( PGJ) is based on the Halter USX China Index, which is composed of the U.S.-listed securities of companies that derive a majority of their revenue from the People's Republic of China.

If the extent of the fraud suggested by this investigation turns out to be accurate, the SEC probe could conceivably impact the U.S.-listed Chinese firms at the core of PGJ. This kind of investigation could cause problems for PGJ's pricing and construction. Trading value could be negatively impacted, and investor fear could drive PGJ's trading value to a discount over the course of the investigation.

Until investors learn more about the extent of the SEC probe, it may be wise for ETF investors to avoid ETFs that track U.S.-listed Chinese firms.

It is less likely that ETFs that track Chinese ordinaries (stocks traded at exchanges in China and Hong Kong) would be impacted by this type of investigation.

It is important that investors check their portfolios and learn the difference between these two types of Chinese ETFs. While both types of these Chinese ETFs trade on U.S. exchanges, the big difference is that some of these ETFs track Chinese "ordinaries" (stocks traded on exchanges in China and Hong Kong) while some track U.S. -listed Chinese ADRs (Chinese companies with a dual listing on American stock exchanges). PGJ falls into the latter category, and the popular iShares FTSE China 25 Index Fund ( FXI) the former.

Invest in Israel

12/20/2010 4:00 p.m. EST

Uncertainties abound in the global economy -- U.S. debt, European woes, saber-rattling in Korea, China fighting inflation. But there is a market that continues to climb: Israel. iShares MSCI Israel ( EIS) makes a lot of sense right now.

The fund has returned 12.28% year to date after returning a whopping 81.9% in 2009. While the fund gives you exposure to technology plays like CheckPoint Software Technologies ( CHKP) and Nice Industries ( NICE), top component Teva Pharmaceuticals ( TEVA) (which makes up 25% of the holdings) can have a great amount of influence on trade action. Another holding is Bezeq Israeli Telecommunication, whose board approved a distribution of 3 billion shekels ($835 million) in dividends, sending the Tel-Aviv listed company to its highest level since January 1995 when Bloomberg starting tracking its stock.

I see Israel as an ongoing growth story for technology, biotech, defense and telecommunications ... and did you hear that oil was recently discovered in Israel? Just one more reason to be bullish on this piece of the Middle East.

At the time of publication, Dion had no positions in stocks mentioned.

Bond Switcheroo

12/20/2010 10:35 a.m. EST

Investors have been moving out of municipal bond mutual funds and into high-yield choices -- a trend that hasn't been missed by the ETF industry. Last Thursday, Lipper announced that high-yield funds had attracted record inflows for the weeklong period ending last Wednesday. It was the second straight week that this group of mutual funds saw gains. Lipper also noted that municipal bond funds lost nearly $3 billion during the week ending Dec. 15.

Nervous about sovereign debt issues overseas and the troubling financial problems that face many U.S. states, ETF investors have also been turning their eyes toward high-yield options. The SPDR Barclays Capital High Yield Bond ETF ( JNK) jumped 3.62% during the three-month period ending Dec. 17, while the iShares S&P National AMT-Free Municipal Bond ETF ( MUB) dropped more than 5% during the same period.

Stuck in the middle has been the Market Vectors High Yield Municipal Bond ETF ( HYD), a fund that combines high-yield with municipals. HYD has seen whipsaw action in recent sections and is probably a fund to avoid as investors sort out which fixed-income investments will be the most appropriate heading into 2011.

The recent success of funds like JNK and the iShares iBoxx High Yield Corporate Bond ETF ( HYG) has not been lost on issuers in the rapidly expanding ETF industry. Guggenheim recently filed to introduce its own Enhanced Short Duration High Yield Bond ETF, and other major players will likely continue to capitalize on the thirst for high yield.

Uncertainty about state and National debt, paired with increasing confidence in equity markets, should continue to attract cash to higher-yield investment choices in the months ahead. While a relatively balanced pick like JNK or the more conservative HYG could be a good pick for a small portion of your fixed-income portfolio, I also encourage investors to consider well-balanced, highly-traded dividend picks like the iShares Dividend ETF ( DVY). Predictable yield and income will continue to be an important theme as we move into 2011, and investors should exercise caution in selecting ETFs that are in line with their objectives.

At the time of publication, Dion Money Management was long DVY and HYG.

--Written by Don Dion in Williamstown, Mass.

>To contact the staff member responsible for this article, click here: Ross Snel.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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