Five ETFs For the Stock Market Rebound

Stocks have launched an impressive recovery in the past few weeks and some ETFs have led the pack. Over 400 ETFs are available representing all asset classes, industry sectors and many global regions.

The key is to hone in on those markets that have shown the most strength as this global market recovery takes shape. Here are five ETFs to keep on your radar screen:

iShares MSCI Netherlands (EWN)
The Netherlands has a prosperous and open economy, which depends heavily on foreign trade. The country has stable relations, moderate unemployment and is an important European transportation hub. The country continues to be one of the leading European nations for attracting foreign direct investment.

This ETF holds 27 of the top Dutch companies, with financial companies ING and ABN AMRO weighing in at 18% and 14% respectively. ING has a large presence in Asia, as well as markets around the world. ABN AMRO is currently in merger talks with Barclays, with the combined entity headquartered in Amsterdam. Philips Electronics and Unilever round out the top holdings.

EWN is up 8.5% year-to-date and was up 31.5% last year.

iShares MSCI South Africa Index (EZA)
Growth prospects in South Africa are solid, as South African Finance Minister Trevor Manuel presented a $75 billion budget for 2007. GDP rose at a rate of 4.9% last year and is expected to continue at 5% over the next 3 years. The country exports gold, diamonds, minerals, and metals. Top holdings are mining stocks, which include Sasol Ltd. at 9.34%; Standard Bank Investment with 8.35%; and Vail Resorts Inc. holds 7.98%.

The country has recorded its first ever economic surplus, and with gold on the rebound this ETF looks promising. EZA is up 5.4% for the year and was up 17.1% in 2006.

iShares S&P Latin America 40 Index (ILF)
Despite the expansion of Chavez's powers throughout Venezuela and Ecuador, investor confidence need not be swayed away from Latin America. Brazil and Mexico represent the largest economies backed by pro-market politicians. The major economies are swinging to the left and as long as they continue to follow the free-market model, economies will continue to flourish.

The iShares S&P Latin America ETF rose 38% in 2006. Economists remark the growth will remain steady after such a large expansion and with lower commodity prices the reason for a slight slowdown. The leading sector is industrial materials, followed by telecommunication and energy. Top holdings are Companhia Vale; Petrolio Brasileiro;and Cemex. ILF is up 4.7% for 2007.

WisdomTree International Financial Sector (DRF)
This ETF consists of global banks in developed countries, other than the U.S., that are enjoying benefits of continued growth in foreign countries. Institutional holders include Goldman Sachs and Merrill Lynch. Top holdings are HSBC Holdings PLC at 6.37% and Royal Bank of Scotland Group with 3.38%. This ETF is up 3.3% for the year, it was launched in October 2006.

ProShares Ultra QQQ (QLD)
This leveraged ETF specializes in the Nasdaq 100 Index. The aggressive long strategy does impose some intense risk, but when short-term trades are implemented, results can be rewarding. The reason short-term is ideal is the cost of maintaining a leveraged position is an important consideration.

Technology stocks have led the latest market recovery, which is outlined in the increased beta in this ETF. ProShares Ultra QQQ grabs twice (200%) the daily performance of the Nasdaq 100 Index. The Nasdaq 100 is loaded with tech stocks and with these as the best performers during this recovery, this fund is on the top of the list. Since the low on March 5th, Nasdaq 100 is up 5%. QLD is up 10% during the same time period.

Full Disclosure: Some of Tom Lydon's clients own ILF.

EWN, ILF, EZA, QLD, DRF 1-yr chart:

Comments

[Malkiel]

I'm going to argue just a little, Tom, with your Characterization of QLD as being "high-risk". Remember that it isn't the shareholder that's leveraged, it's the mechanism Proshares is using to "virtualize" their simulated short position. So far since its inception shares of QLD have had a reasonably consistent multiple over its non-leveraged sibling QQQ, so if the mechanism is sound then you're really just buying a Nasdaq index fund. General index-buying principles apply here, which are, as we know, that the market is up 60% of the time and long-term has returned a minimum of 7% per annum, so a vehicle that can reliably return 14% under the same conditions is an excellent investment.

Buying shares of QID, its ultrashort evil twin, are much riskier only for the fundamental reason mentioned above that the market is only down fewer than 30% of the time and it may therefore tie up funds a very long time before any profit could be seen from a sellable dip. It does make cheap insurance, however, if you're lucky enough to have a deep-discount broker and the ability to set trailing stops on your trading platform...