ETF Update: All Purpose ETF, Housing Blues, Cheap ETFs, Bond Boom

Topics in today's ETF Update Include: All Purpose ETF, XHB Can't Catch A Break, Bargain Basement ETFs, Bond ETF Boom.

All Purpose ETF
Are you looking for an all-around ETF that features a low expense ratio, diversification and a solid $8.5 billion in assets?

It's here: The Vanguard Total Market ETF (VTI) has all these features plus a track record to back it up, as it has been around since 2001. It has an expense ratio of 0.07%, most likely from a low turnover rate of 4%. Zoe Van Schyndel for The Motley Fool says she especially likes this ETF because it is the most diversified of many portfolios.

VTI tracks the MSCI U.S. Broad Market Index that represents 99.5% of the U.S. equity market. This ETF has more than 3,500 securities picked from consumer discretionary, energy and consumer staples. The funds solid one-, three- and five-year annualized returns are respectively, 15.3%, 13.2% and 13.1%. Currently, VTI is up 14.7% over the past year.

XHB Can't Catch A Break
It seems the SPDR S&P Homebuilders (XHB) ETF cannot catch a break. It's still a staggering 47.4% off its high.

Every day it seems there's a new story on the doom and gloom of the housing market. Foreclosures are at a historic record high. Pending sales of previously owned U.S. homes fell 12.2% in July from credit tightening, bringing them to their lowest point since September 2001, according to Joanne Morrison for Reuters.

Economists warn that the situation could get worse in the coming months as an estimated 2 million adjustable-rate mortgages taken out with low introductory interest rates reset to much higher rates, reports Martin Crutsinger for the Associated Press. If that turns out to be true, XHB could continue its rough ride for a while.

Bargain Basement ETFs
Stocks are a lot cheaper right now than they were just month ago, meaning the ETFs that hold them are marked down too. Is it possible to determine which stocks are a true bargain and which are overpriced?

Michael Krause for TheStreet.com examines some of the ETFs on the sale rack and how much they have been marked down. He reminds us that there is more to bargain hunting than buying funds that have been marked down and hoping they will bounce back significantly.

For example foreign ETFs could be good bargains now. The iShares MSCI EAFE (EFA) and the iShares MSCI Emerging Markets (EEM) have rebounded recently but are still down from their July highs. The oddity is that of these two funds, neither are strongly tied to the credit meltdown but have suffered large losses. They are cheaper than their large-cap U.S. counterparts, so it appears likely they were sold by nervous investors.

EFA vs. EEM 1-yr chart:

Bond ETF Boom
Fixed-income ETFs are allowing investors easy access to areas of the bond market. The easier route isn't always better, as there is plenty of room for trouble. Bond investors have felt the turbulence of the subprime meltdown, as the prices of some risky bonds have dropped along with mortgage-backed securities.

Eleanore Laise for The Wall Street Journal reports that dozens of new bond ETFs have launched this year, and some focus on emerging-market debt or "junk" bonds. One example of such an ETF is the iShares iBoxx $ High Yield Corporate Bond (HYG), which is generally more appropriate for investors with a high risk tolerance. High-quality bonds tend to be the diversified and safer route. A couple to look into include:

SPDR Lehman 1-3 Month T-Bill (BIL)

SPDR Lehman Long Term Treasury (TLO)

BIL vs. TLO 4 month chart: