Earnings Plays for ETF Investors

NEW YORK ( TheStreet ) -- Heading into earnings season, the mood is admittedly reserved. Despite the strong start to the year, analysts surveyed by The Wall Street Journal reportedly expect to see some of lowest growth figures since the end of the financial crisis.

Weakening economic performance from China and Europe is certainly a contributing factor to this conservative outlook. In addition, however, it is important to remember that the bar has also been raised as the global economy has fought its way back from the crippling Great Recession.

This week, big-picture news will again steal headlines. In Monday's " 5 ETFs to Watch This Week ," I noted that a spattering of Chinese data points are slated for release on Thursday. Some of the focus should shift from big-picture issues to individual firms as earnings season heats up. For ETF investors, the coming weeks will be exciting to watch.

In traditional fashion, Alcoa ( AA) will kick things off when it steps up to the plate after today's closing bell. The aluminum giant's performance is worth monitoring as a barometer for economic activity. However, for ETF investors, the company's direct sway over fund performance is minor. The SPDR S&P Metals & Mining ETF ( XME) boasts some of the heaviest exposure to Alcoa, though it sets aside only 3% of its assets to the firm.

For ETF investors looking for direct earnings plays, the important movers to monitor this week are search giant Google ( GOOG) and financial titans, JPMorgan ( JPM) and Wells Fargo ( WFC). With 10% of its assets dedicated to the company, the First Trust Dow Jones Internet Index Fund ( FDN) is the most effective way for ETF investors to target Google.

Meanwhile, targeting major financial players can be tricky.

With nearly one-fifth of its portfolio dedicated to the duo (Wells, JP) on tap, the Financial Select Sector SPDR ( XLF) may seem like the obvious choice. However, in the past we have seen this type of top-heavy exposure create headaches. Given the struggling performance of the financial sector in recent quarters, a more-diversified play may be the better option here.

The SDPR S&P Bank ETF ( KBE) casts a wide net over the financial sector, spreading its exposure across a group of 40 institutions varying in size and influence. The fund's assets are well-distributed; no single holding accounts for more than 3% of the portfolio. JPM and WFC can be found within the fund's top-10 list. However, the two firms' combined stake is less than 6%.

Looking ahead, macroeconomic factors will continue to influence the ebb and flow of investor sentiment. These are not the only issues to keep in mind when constructing a game plan, though.

Throughout the opening months of 2012, the focus had largely been geared toward the global macroeconomic landscape. Initially, improving conditions in the E.U. and encouraging data from the U.S. were enough to propel major stock market averages along a largely uninterrupted upward trajectory. Unfortunately, as the rally continued and matured, the data began to show some signs of deterioration.

China slowdown fears have been thrust into the spotlight, while troubles in nations like Spain have begun to reignite sovereign debt concerns in Europe. Even the U.S. data, which have been a bastion of strength and stability, have stumbled a bit lately; Friday's disappointing nonfarm-payrolls reading capped an already-shaky week of announcements and data.

Investors should watch closely to get a feel for how companies are faring in the current market environment. Ultimately, caution is still warranted. Investors will be barraged with data in the weeks ahead. Be sure to avoid letting this deluge of information cloud your judgment.

Market Preview: Hitting Pause

Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management held no positions in equities mentioned.

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