ETF Update: Oil ETF Can't Get A Grip, China Volatility, Bond Opportunities?

Oil ETF Can't Get A Grip

The oil service ETF can't seem to get a grip and is slipping in the wrong direction. The oil services sector tracking stock hit a one-month high before turning slightly lower as of Thursday. Meanwhile, crude prices are rising. ended the week at $95.50 a barrel, fueled by a surge in natural gas

The Oil Service HOLDRs (OIH) slipped 0.3% after being up as much as 1.4% earlier in the session, reports Brigid Gaffikin for CNN Money. It was the fund's highest level reached since Jan. 17.

Oil prices. The rises in oil are far less than previously expected, though.

China Volatility

China and its ETFs might occasionally bring back memories of that dramatic high school relationship: volatile and full of high highs and low lows.

Just look at the 2007 performance of the iShares MSCI Xinhua/China 25 Index (FXI) vs. right now: it ended last year up 54.8%. So far this year, it's down 15.7% and is 35% off its high. The fund is still up 600% in five years, though.

The upside of the returns comes with a lot of risk but there

Jim Jubak for MSN Finance says that China still comes with big risks. The economy is growing quickly - maybe too quickly. The money supply in the country is growing at a faster rate than the economy, a prime situation for inflation. Another risk, he says, comes about because China's economic and financial systems differ so much from our own. Accounting isn't easy.

are ways to cut down the risk as well as help investors find the source of the risk.

1. If you own Chinese securities, hedging some of you risk with a short ETF is a good idea. ProShares Ultrashort China (FXP) is a tool to help catch the downside. China's economic risk is extreme, with inflation and interest rates threatening to dampen the hot spell, but this way you'll have bases covered.
2. Stay aware of the risks. It can help give insight into when it may be time to bail.

Joanne Von Alroth for Investor's Business Daily says that some analysts feel that it might not be time to give up on China just yet. Many of China's woes have stemmed from a double whammy of a faltering U.S. economy and the most severe snowstorm the country has seen in 50 years. Factories shut down, transportation was halted and power was out for days.

Those analysts say to give China a break - it's not fair to judge a country's overall economy on the basis of temporary, short-term occurrences. Keep an eye on the country and watch how they deal with recovery from the weather disaster and how the U.S. economy continues to affect it.

Bond ETF Opportunities?

The bond market has taken a bit of a hit to its reputation lately, which hasn't necessarily been doing its ETFs any favors.

At the moment, municipal bonds are having their name dragged through the mud as the insurers behind them are taken to task for all kinds of risky investments related to the subprime mortgage industry.

Morgan Housel for the Motley Fool says that this provides a great opportunity for investors. When markets are controlled by fear, investments are sold and that's your time to swoop in and maybe make a killing.

Despite all the issues surrounding municipal bonds, they are still a good investment, if only for the tax advantages they offer. Interest income is exempt from federal taxes. Factor that in, and they look more appealing than stocks might.

And even amid the turmoil, these fixed-income investments are still proving themselves as the broader market isn't quite going in the right direction.

For example, iShares Lehman TIPS (TIP) has returned 15.82% while the S&P 500 lost 5.63% over the past year, reports Jesse Emspak for Investor's Business Daily. In fact, all iShares fixed-income ETFs have outperformed the S&P since last year, with the smallest gain bringing in 5.36% from iShares Lehman Short Treasury Bond (SHV).

Other bond ETFs haven't been around as long as the iShares family, so they don't have a performance history. TIP has been around for 5 years and and contains $5.8 billion in assets and has returned 2.33% year-to-date.

Bond ETFs are an alternative to bond mutual funds and are proving they can shelter investors when they seek it.