ETF Update: Plays for Drop in Oil Price, Tech ETFs, Options Available on GLD

If Oil Prices Fall, What ETF Sectors Do You Want To Be In?

The law of physics dictates that whatever comes up, must come down, and oil prices and ETFs are not immune to this. During recent months, oil prices have taken off and gone higher and higher.  Some analysts are calling for oil to top at $150-$200 until prices begin to ascend, reports Michael Lynch for MarketWatch. But over the past few days we've seen oil prices retreat.  In fact, Wednesday morning oil dropped below $123 per barrel, off from a high of $135.

So what happens when the price of oil backs down? The effects could trickle into every economic tier, with a boost to certain economies, such as Russia, while interest rate pressure would alleviate in Europe and Asia, leading to a stronger U.S. dollar.

As the price of oil falls, Lynch looks at the different sectors and how they might be affected.

• Consumer spending could improve as there is less money going into the gas tank: iShares Dow Jones U.S. Consumer Goods (IYK).
• Lower inflationary pressure may do well for bonds: Vanguard Total Bond Market (BND).
• A stronger dollar may emerge: PowerShares DB U.S. Dollar Index Bullish (UUP).
• Oil companies may not see the astronomical profits they've seen lately: Energy Select Sector SPDR (XLE).
• Oil service companies will feel price pressure: Oil Services HOLDRs (OIH).
• If weaker demand is reason for the decline, then refineries could be hit: iShares Dow Jones U.S. Oil & Gas Exploration Index (IEO).
• Petrochemical producers use large amounts of energy so they would welcome the lower price, thus helping agribusiness and food prices: Market Vectors Global Agribusiness (MOO).
• Trucking companies can deliver those packages with lower fuel costs: iShares Dow Jones Transportation (IYT).
• Could alternative energy be shunned as the "crisis" subsides?: Market Vectors Global Alternative Energy (GEX).

For full disclosure, some of Tom Lydon's clients own IYT.

When It Comes to Technology ETFs, Diversifying Outperforms Long-Term

When it comes to technology ETFs, is it better to target a specific segment of the sector or broaden your horizons?

Gary Gordon for ETF Expert believes that two-year returns indicate that the results are better with the broader funds. To make his point, he says that the iShares Dow Jones Technology Fund (IYW) was out-hustled by only one of the sub-sector ETFs, which was the iShares Goldman Sachs Software Fund (IGV).

The three-year annualized returns for IYW are 7.8%; for IGV, they're 8.6%. The three-year numbers for the Technology Select Sector SPDR (XLK) are up 7.7%.

The other funds saw greater volatility:

• First Trust Dow Jones Internet (FDN), down 5.5% in the last year*
• Goldman Sachs Networking (IGN), three-year annualized returns up 4%
• State Street Semiconductors (XSD), down 10.7% in the last year*
• PowerShares Lux Nanotech (PXN), down 18.2% in the last year*

Easy and instant diversification is one of the most attractive features of ETFs. If you decide you'd rather tackle a sub-sector, just have your stop loss in place and be prepared to hit the eject button if and when the time comes to do so.

*Three-year annualized returns not available

Options for Gold ETF Investors

The Securities and Exchange Commission and the Commodity Futures Trading Commission [CFTC] determined that ETF investors will now be able to trade futures and options contracts on the SPDR Gold Trust (GLD). Until now, trading derivatives based on a commodity related ETF wasn't possible, but now increased innovation and competition will allow for new products, thanks to the regulatory shift.

Mutual Fund Wire reports that Christopher Cox, Chairman of the SEC, says approval of these offers allow investors in the U.S. a more convenient and cost effective manner to manage risk.  The coordinated effort with the two agencies are expected to show a clear and united voice and enhance legal and regulatory certainty.  New options for gold investors who invest their money into gold ETFs will be able to order a put or a call on their investments.

According to Investopedia, a put is an option contract allowing the investor to sell a certain amount of an underlying asset at a set price within a time frame, if they decide to do so. This is usually done on speculation that the underlying asset will drop in price.

A call is an option contract allowing, but not obligating, an investor to buy a certain amount of an underlying security at a specified price, before a certain time. This is indispensable when the price of the underlying stock, or asset, appreciates.