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Invest In America With These 4 ETFs

Now more than ever, it is a great time to invest in the United States. Foreign concerns are piling up around the world and a number of global economies appear to be teetering on the brink of more turmoil. Greece threatens to take the rest of Europe down with it in a debt spiral that could put extra focus on the rest of the eurozone peripheral economies in the process. China is also on the brink, as its latest steps seem unable to stave off a stock market slide in what had been one of the hottest corners of the globe to start the year. Meanwhile, here in the U.S., stocks are holding steady while we are seeing reasonably positive data on multiple fronts as well. Consumers remain confident, oil prices are moderate, construction spending is rising and unemployment remains a very small problem for many. As you can see by the preceding paragraphs, there is quite the difference between what is going on in the U.S. and what is happening in the rest of the major economies of the world. And this doesn’t even go into the peril that many emerging markets – or even commodity-focused nations – find themselves in right now. So if you are looking to make a targeted investment in the U.S., consider any of the four ETFs outlined below. These picks go across asset classes so there should be something for every investor who is looking to bet on the United States of America in a portfolio: First Trust RBA American Industrial Renaissance ETF (NASDAQ: AIRR ) If you are looking to bet on a resurgence in American industrial might and production, AIRR is a great choice. The fund focuses on small and mid cap stocks in the industrial and community banking sectors. The index starts with Russell 2500 index components and then eliminates all those that aren’t related to manufacturing or related infrastructure, as well as banking. Companies are then screened out which do more than one-quarter of their business beyond U.S. shores, or have a negative forward PE. For the banking component, only banks in traditional manufacturing hubs will be included in the holdings list. This approach looks to focus on small and midsized manufacturing companies that are selling to other U.S. firms or customers. And the banking component not only provides diversification, but acts as a secondary way to play a manufacturing boom as many small cap industrial companies will look here for their capital needs. PowerShares Build America Bond Portfolio ETF (NYSEARCA: BAB ) The Build America Bond program consists of taxable muni bonds which come with a 35% interest rate subsidy, paid to the issuer. This makes these taxable securities competitive on a cost and yield perspective for issuers and a solid choice for muni bond investors. And though the program ended as part of the American Recovery and Reinvestment Act, there are still plenty of these bonds outstanding, making them excellent ways to invest in America from a fixed income perspective. Investors should note that the duration is a bit high here coming in at just under 10 years, so interest rate risk is definitely something to consider. However, with the recent Greek issues, a rate hike could be postponed in the near term. And with a 30-day SEC Yield of about 4.2%, it definitely is an income destination. It has been a weak run for BAB as of late, but you can say that about many muni bond ETFs in the past few months, and especially those with more interest rate risk. However, if you are looking for a different type of muni bond ETF – and particularly one in the taxable market – BAB and the Build America Bond market will be tough to beat for betting on America in a fixed income portion of a portfolio. Teucrium Corn ETF (NYSEARCA: CORN ) The United States is the world’s biggest producer of corn by far, producing nearly as much as China, Brazil, and the entire EU bloc combined. And for exports, there is a similar story brewing with the U.S. easily leading the pack. This makes corn a great crop to invest in if you are looking to make a play on a U.S.-centric natural resource. Investors can play this commodity with the Teucrium Corn ETF which sees a decent amount of volume and AUM approaching $100 million. The fund doesn’t just invest in front month corn futures though, as it includes second to expire CBOT futures, third to expire futures, and then the December futures following the expiration month of the third to expire contact. Though the commodity is down against the S&P 500 through the first half of the year, it is slowly making a comeback and has gained about 13% in the past month. This big gain is due to a great crop report so be on the lookout for CORN later this summer as well. PowerShares DB USD Bull ETF (NYSEARCA: UUP ) Thanks to more global central bank easing and demand for safe havens, the U.S. dollar has been a strong performer as of late. And speculation that a rate hike could be coming at some point soon is certainly something that can’t be said for a number of other central banks out there which are moving in the other direction. You can easily bet on continued dollar strength with UUP though, as this ETF offers exposure that goes long in USDX futures against a variety of developed market currencies. The euro constitutes about 58% of the benchmark, 13% goes to yen, and then 11.9% is in British pounds and 9% in Canadian dollars. The fund is thus heavily dependent on the performance of the dollar against the euro but this has been a great trade for a while and could continue to be as long as the European debt crisis persists. Plus with a Zacks ETF Rank #2 (Buy), the longer term picture is looking bright for this ETF too. Original Post

3 Sectors To Watch In The Second Half Of 2015

Summary The tepid return in the major averages was generated by weakening in interest rate sensitive areas and continued strength in high growth leadership categories. Healthcare stocks were once considered a defensive area of the market, yet have transitioned to a more growth oriented phase. Conversely, utility stocks have been torched by rising interest rates that have eaten away at their returns. The S&P 500 Index was nearly unchanged in the first half of 2015, yet the divergences in underlying sectors told a very different tale. The tepid return in the major averages was generated by weakening in interest rate sensitive areas and continued strength in high-growth leadership categories. This tug-of-war style market has created a relative valuation chasm between several important sectors that warrants close attention. Leader: Healthcare Healthcare stocks were once considered a defensive area of the market similar to consumer staples and utilities because of their inelastic business models. After all, medical services and drug companies operate with little cyclical burden to their bottom line. Nevertheless, some believe that these stocks have transitioned to a more growth-oriented phase that has been driven by the biotech boom and continued advancements in the medical field. The Health Care Select Sector SDPR ETF (NYSEARCA: XLV ) has been a top performing area of the market over the last three- and five-year time frames and continues to lead as the No. 1 sector so far this year. There’s no doubt that this ETF has shown tremendous momentum and activity has been robust as XLV has gained 9.51% through June 30. While this area of the market has been one of the most resilient, I would be hesitant to chase performance and add near its recent highs. If XLV or a similar healthcare fund has been on your radar, I would be patient with respect to any future entry points and look to pick up shares on at least a modest dip. In addition, this sector should serve as a benchmark of momentum leadership. If we see XLV start to fall out of favor, it may signal that investors are looking to pair back on risk and potentially rotate into a more defensive stance. Healthcare stocks currently make up over 30% of the iShares MSCI USA Momentum Factor ETF (NYSEARCA: MTUM ), which screens its underlying holdings for recent performance characteristics. Laggard: Utilities On the flip side of the coin, utilities have been torched this year as a result of rising interest rates. Coming off a strong performance in 2014 where rising rates acted as a tailwind, the Utility Select Sector SPDR (NYSEARCA: XLU ) is down 10.70% through the first half of 2015. The price of XLU peaked at virtually the same time as interest rates bottomed and has been on a steady course lower ever since. For the moment, it appears that the fate of utility stocks is going to be closely tied to the price action of U.S. Treasury yields. This traditionally defensive sector has been eschewed for more growth-oriented positions in healthcare, consumer discretionary and technology stocks. From a relative value standpoint, I believe that utilities look attractive at these levels given the thesis that interest rates will remain stable or head lower over the next six months. The recent drop in price also has boosted the yield on XLU to a healthy 3.80%, which makes it the highest yielding sector in the S&P 500. Income investors should note that diversified dividend funds such as the iShares Select Dividend ETF (NYSEARCA: DVY ) and First Trust Morningstar Dividend Leaders Index Fund (NYSEARCA: FDL ) have outsized utility sector exposure. This asset allocation acted as a drag on returns in the first half of the year and should be noted as a key driver moving forward as well. Tweener: Financials Financial stocks have long been touted as the cure to beat rising interest rates, yet the Financial Select Sector SPDR (NYSEARCA: XLF ) has been mired in a sideways malaise since the beginning of the year. XLF posted a net return of -0.61% through the first six months of 2015 and has failed to show inspiring price action to back up its reputation. XLF is an interesting fund because of the wide designation of financial-centric companies. This ETF includes large banks, REITs, brokerages and even diversified holding companies such as Berkshire Hathaway Inc (NYSE: BRK.A ) (NYSE: BRK.B ). REITs are currently the third largest industry group within XLF at 14.20% and have dragged on returns since the beginning of the year. The iShares U.S. Real Estate ETF (NYSEARCA: IYR ) has experienced the same interest rate sensitive drag as utility stocks and is down 5.5% in 2015. Conversely, indexes that focus solely on banking stocks such as the SPDR S&P Bank ETF (NYSEARCA: KBE ) have gained 8.87% this year. Clearly these stocks are the true beneficiaries of the rising interest rate theme as it relates to a fundamental driver of industry returns. Ultimately, XLF appears to be experiencing its own internal tug-of-war based on this bifurcation between sub-sectors that has caused it to drift aimlessly for the last six months. The Bottom Line The information presented above can be applicable to both broad-based indices and individual sector investing. Investors that own diversified equity ETFs need to be cognizant of the underlying asset allocation and sector positioning as it relates to future risk and returns. Those who prefer to select more targeted ETFs may choose to shift their positions in order to take advantage of a specific theme or pair back on an overbought area of the market. Making small tactical changes of this nature can have a big impact on your performance and risk profile as we make our way into the second half of the year. I spoke in-depth about these topics and more in our recent mid-year teleseminar: Four Components Of A Successful Income Portfolio . Click here for the presentation . Disclosure: I am/we are long DVY. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: David Fabian, FMD Capital Management, and/or clients may hold positions in the ETFs and mutual funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell, or hold securities.

How To Find The Best Sector ETFs: Q2’15 In Review

Summary The large number of ETFs hurts investors more than it helps as too many options become paralyzing. Performance of an ETFs holdings are equal to the performance of an ETF. Our coverage of ETFs leverages the diligence we do on each stock by rating ETFs based on the aggregated ratings of their holdings. Finding the best ETFs is an increasingly difficult task in a world with so many to choose from. How can you pick with so many choices available? Don’t Trust ETF Labels There are at least 43 different Financials ETFs and at least 188 ETFs across all sectors. Do investors need that many choices? How different can the ETFs be? Those 43 Financials ETFs are very different. With anywhere from 20 to 556 holdings, many of these Financials ETFs have drastically different portfolios, creating drastically different investment implications. The same is true for the ETFs in any other sector, as each offers a very different mix of good and bad stocks. Consumer Staples ranks first. Energy ranks last. Details on the Best & Worst ETFs in each sector are here . A Recipe for Paralysis By Analysis We firmly believe ETFs for a given sector should not all be that different. We think the large number of Financials (or any other) sector ETFs hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many ETFs. Analyzing ETFs, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each ETF. As stated above, that can be as many as 556 stocks, and sometimes even more, for one ETF. Any investor worth his salt recognizes that analyzing the holdings of an ETF is critical to finding the best ETF. Figure 1 shows our top rated ETF for each sector in Q2’15. Figure 1: The Best ETF in Each Sector Sources: New Constructs, LLC and company filings How to Avoid “The Danger Within” Why do you need to know the holdings of ETFs before you buy? You need to be sure you do not buy an ETF that might blow up. Buying an ETF without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap, if it holds bad stocks, the ETF’s performance will be bad. PERFORMANCE OF FUND’S HOLDINGS = PERFORMANCE OF FUND If Only Investors Could Find Funds Rated by Their Holdings The PowerShares KBW Property & Casualty Insurance Portfolio ETF (NYSEARCA: KBWP ) is the top-rated Financials ETF and the overall best ETF of the 188 sector ETFs that we cover. The worst ETF in Figure 1 is the SPDR S&P Telecom ETF (NYSEARCA: XTL ), which gets our Dangerous rating. One would think ETF providers could do better for this sector. Disclosure: David Trainer and Max Lee receive no compensation to write about any specific stock, sector, or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.