3 ETFs to Watch This Week: FXE, ALUM, SMH

Includes: ALUM, FXE, INTC, SMH
by: Michael Johnston

Equity markets were range-bound last week, struggling to make significant moves in either direction. Gold took a big tumble early in the week, dropping well below the $1,400 mark as concerns over the health of the global economy subsided. Wall Street also rallied in the middle of the week following a round of positive jobs and non-manufacturing data. Treasuries were flat for the most part as well, with the iShares Barclays 20+ Year Treasury Bond (NYSEARCA:TLT) finishing the week lower by just 1.8%. Yet, domestic markets took a small hit on Friday following the disappointing unemployment report, which showed a decline in the national unemployment rate – as a result of people giving up on the search for work – as fewer jobs were added than expected.

This week, investors will be kept busy with the start of earnings season after the market closes on Monday, and a round of economic data hits the street towards the end of the week, including jobless claims, readings on inflation from both the producers and consumers, consumer sentiment, and releases by two key European central banks -- all of which should make the following three ETFs investors will want to keep an eye on as January continues:

Rydex CurrencyShares Euro Currency Trust (NYSEARCA:FXE)

Why FXE Will Be In Focus: This exchange-traded product tracks the EUR/USD exchange rate and has become quite a popular instrument for gaining exposure to the euro. FXE will come into focus later in the week as the European Central Bank announces on Thursday its decision regarding interest rates. Slow growth and uncertainty have plagued the eurozone this year; in fact, FXE has returned a dismal -10% in the past 52-weeks of trading. The benchmark rate has been at 1% since May of 2009, and analyst consensus is for the rate to remain unchanged.

Many anticipate that the rate will remain stable for quite some time, since tensions in the eurozone are still high; worries about the financial health of the continent are also still prevalent and surely on investor’s minds. Regardless of the decision, the announcement itself will probably increase trading volumes for FXE, as traders and investors scramble to open/close positions based on the decision and insightful commentary that the bank committee releases regarding its outlook on inflation, growth, and what is likely to come next for the troubled common currency zone.

Global X Aluminum ETF (ALUM)

Why ALUM Will Be In Focus: Aluminum giant Alcoa Inc. (NYSE:AA) is scheduled to kick off earnings season on Monday when it announces fourth quarter results after the market close. Investors interested in adding commodity producer exposure to their portfolios could consider ALUM, which tracks the performance of the largest and most liquid listed companies that are active in some aspect of the aluminum industry, such as bauxite aluminum ore mining, production, or refinement. The fund has 10% of its holdings allocated to Alcoa, and analyst consensus is for revenues to come in at $5.6 billion with earnings of 18 cents per share.

“Alcoa’s laggard status has piqued investor interest in the name as a possible comeback play for 2011 and, given signs of operational stability, we don’t disagree,” commented Deutsche Bank (NYSE:DB) analyst Jorge Beristain. Global aluminum consumption is expected to increase upwards of 10% in 2011, with emerging economies like Brazil and China driving demand for construction, infrastructure, and consumer products. Due to these trends and AA’s place as one of the biggest components of ALUM, look for this brand-new fund to remain in focus for much of this week’s trading session, especially if the bellwether’s earnings deviate significantly from analyst expectations.

HOLDRS Merrill Lynch Semiconductor (NYSEARCA:SMH)

Why SMH Will Be In Focus: The HOLDRS Semiconductor ETF gives investors concentrated exposure to the semiconductor industry, with the fund holding just 18 companies in total. SMH will come into focus this week as Intel Corporation (NASDAQ:INTC), which is 20% of SMH, is slated to report earnings this Thursday. Analysts expect the chip giant to report revenues $11.37 billion and earnings per share of 53 cents. “Given its position as the largest PC-microprocessor vendor, competitive threats from existing and new entrants are a continual risk,” said Cody Acree, analyst from Williams Financial Group. Furthermore, Acree added that Intel is sure to face some challenges going forward with respect to the company’s attempt to increase its market share, especially in the mobile market. On the other hand, Intel is a leading provider of server hardware, which is a market that is bound to see an inflow of investments, considering the robust growth that is expected out of the smart phone industry.

SMH has had a less than stellar performance recently; however, in the past 26 weeks it has returned an impressive 20%. Investors and traders are sure to keep an eye on SMH as Intel’s earnings are released, and more importantly, take note of any insightful commentary that the company offers with regards to the industry as a whole and their expectations for chip demand in 2011.

Disclosure: No positions at time of writing.

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