ETF Update: Industrial Plunge Plays, Financial ETFs Take a Beating

ETF Investing Ideas for the Industrial Plunge

Industrial output has broad implications for the economy and ETFs, so it isn’t good that it plunged by the largest amount in three years.

Output fell by 1.1% last month, and economists were expecting a drop of just 0.3%, reports Martin Crutsinger for the Associated Press. Nearly every sector was hit, too: utilities were off by 3.2%, autos were down 1%, mining, which includes drilling for oil and gas, fell 0.4%.

According to Max Rottersman for ETF Guide, there are ways investors can play this plunge with ETFs. For nearly 30 years, our country has reveled in a boom in productivity and innovation. But now that that’s waning, how are we supposed to become richer? Where do we invest in this kind of slump?

• Our national security runs on the military, which runs on fuel. Therefore, Rottersman notes that certain ETFs should benefit: PowerShares Aerospace & Defense (PPA), iShares GSCI Commodity-Indexed Trust (GSG) and Energy Select Sector SPDR (XLE).
• Rottersman believes financials are going to be in recovery mode for a long time, giving the ProShares UltraShort Financials (SKF) a chance to shine.
• If history repeats itself, housing prices might become the least of our worries. Perhaps we’ll want to start looking around the world again: SPDR MSCI ACWI ex-US (CWI) and Vanguard FTSE All-World ex-US (VEU).

Watch the trends, see what they’re doing and act accordingly. If lowered productivity does affect these funds and they move above trend lines, great; if they don’t, stick to the plan and let them go when they fall below their long-term trend lines or 8% off the recent high.

Financial Tsunami Hits ETFs As Well

The Dow Jones Industrial Average and a whole slew of ETFs traded sharply lower yesterday as a tsunami of trouble hit several large financial firms.

Lehman Brothers Holdings (LEH) filed for bankruptcy protection, Merrill Lynch (MER) was forced to sell to Bank of America (BAC) for $50 billion in stock, reports Tim Paradis for the Associated Press. Meanwhile, American International Group Inc. (AIG) is asking the Federal Reserve for emergency funding.

The developments squashed any hopes that the collapse of Bear Stearns in February was the worst of the 14-month long crisis.

The events this weekend happened after frantic round-the-clock negotiations, as bankers met to try and avoid a downward spiral in the markets, says Andrew Ross Sorkin for the New York Times. Ten major banks pulled together and agreed to create an emergency fund of $70 billion to $100 billion, which financial institutions can pull from in order to protect themselves from the fallout of Lehman’s failures.

Financial ETFs took a beating yesterday:

• Financial Select Sector SPDR (XLF), down 26.7% year-to-date
• iShares Dow Jones U.S. Financial Services (IYG), down 25.8% year-to-date
• iShares Dow Jones U.S. Broker-Dealers (IAI), down 40.5% year-to-date
• KBW Insurance (KIE), down 20.2% year-to-date

Comments

[phdinsuntan...:]

SKF 200 soon

2008 Sep 16 03:58 PM