ETF Update: XLF Fire Sale, Sayonara Yen Carry Trade?, Healthy Healthcare ETFs, Pinch Pennies With ETFs

Topics in this ETF update include: XLF Fire Sale, Sayonara Yen Carry Trade?, Healthy Healthcare ETFs, Pinch Pennies With ETFs.

XLF Fire Sale
Investors fear that the subprime fallout, which has taken its toll upon stocks and ETFs, could result in an all out credit crunch. The financial sector has taken the brunt of the blow, as shares of Financial Sector SPDR (XLF) are down about 10% year-to-date, making it one of the worst performing sectors in the S&P thus far, reports Michael Krause for TheStreet.com.

Krause says he has reasons to believe that investors have overreacted to the overall negative news because XLF has three overlooked positive qualities.

Earnings estimates are rising and not falling.
There is strength in mergers and acquisitions activity that bears a lot of fruit for Wall Street. Insurance firms have seen estimates rise, and overall estimates for XLF are up.

Actual results are strong.
Expectations likely will be surpassed as sector earnings look as if they will be up 9.3% compared to last year at this time.

XLF is cheap.
If research is true and sector fundamentals are improving, then XLF could be a bargain.

Sayonara Yen Carry Trade?
ETF investors that have relied on the yen carry trade could see their strategy disappear soon.

Carry trade refers to the investment strategy where investors borrow money with a low interest rate (such as the yen) convert the borrowed money into a different currency (such as the dollar), and invest it into a higher yielding bond. The difference in yield represents your gain, John Hughes and Scott Maragioglio for TheStreet.com explain. Investors can access the yen through the CurrencyShares Japanese Yen Trust (FXY).

Subprime concerns and credit crunching has weakened the U.S. bond market. If the Fed were to cut interest rates and U.S. bond yields were to decline, this could cause the yen to rise relative to the dollar. The result is the unraveling of the carry trade. Already the yen has started to increase since the subprime woes received heavy attention in July, as the chart of FXY shows.

Healthy Healthcare ETFs
Even with rough markets last week, there were some ETF that ended on a positive note. Some were the narrowly-focused health care ETFs, HealthShares Autoimmune-Inflammation (HHA) and HealthShares Metabolic-Endocrine (HHM), which were up 7.7% and 7.1% respectively, according to Kevin Baker for TheStreet.com.

SPDR S&P Biotech (XBI) was another ETF that ended the week well. It closed up 5.7%. As we mentioned before, the health care sector, which can include biotechs, is generally a safe place to be when the market is all over the place.

People will always get sick and need medicine that biotechs work to create, so they tend not to follow market trends. So analysts recommend not to let market volatility drive you crazy, says Adam Feuerstein for TheStreet.com. Keep an eye on the trends, and have your exit strategy in place.

Pinch Pennies With ETFs
Murray Coleman with The Wall Street Journal says, with more ETFs available and price wars between index funds, competition is heating up. This keeps expense ratios down.

Providers and investors know the savings on expenses can help their performance. Executing trades efficiently behind the scenes is important because any costs saved in the transactions can trickle down to the investor.