ETF Grind's  Instablog

The global financial crisis started in the United States, and the US economy has consequently suffered more than most. Although total output has fallen less than the global average, the rise in America's unemployment rate has been the steepest in the OECD. It has the world's largest budget deficit as a percentage of GDP, save the UK. And although US shares didn't fall as far in 2008, they have hardly risen in 2009 - left in the dust by recovering emerging markets. The economic landscape leaves little for America to celebrate this Independence Day weekend. And considering Thursday's depressing jobs report, the US economy may remain in the doldrums for a long time to come.

Yet even amongst capital-raising entities that operate entirely in the America, there are opportunities. The insured municipal bond sector, for instance, looks like a good place to get high yields with relatively little credit risk. And several industries including home-building and community banking are so far off their highs that valuation alone may make them decent long term choices.

The following five funds aren't necessarily "better" than foreign-focused funds, and may not even been good investments at this precise moment. They are simply the ETFs most dependent on the US economy, and with the most to gain from a strong American recovery:

5. iShares US Healthcare Providers Index (IHF) +5.46% ytd

The HMO industry is an entirely American creation, as most developed countries have more statist health care systems. The 45 companies in this fund, therefore, are almost entirely dependent on the US economy for their fortunes, and also carry heavy political risk related to proposed health care reforms. If the effort to change healthcare leaves health care operators with a profitable niche, the fund will profit.

4. Powershares Insured National Municipal Bond (PZA) +5.29% ytd

This fund invests in municipal bonds, debt securities issued by local governments and other regional public entities. The sector is seen as increasingly risky as real estate values fall and tax revenues plummet. Municipal defaults, however, are very rare and usually linked to strange one-off events (like when Orange County decided it was an expert derivatives trader), and not a poor economy. The PZA invests in insured municial bonds from issuers accross the country. Downgrades may hurt the capital appreciation, but it won't hurt its safe, healthy, tax-exempt yield - currently above 5%.

3. iShares California Municipal Bonds (CMF) +0.39 ytd

If you're looking for higher yield and higher risk, look no further than California. The state announced yesterday that it will henceforth be paying its debts with IOUs [sic], until it can pass a workable budget. The CMF consequently took a hit as investors begin to fret about a possible default, but a California default would be so shocking to global capital markets that it is unlikely to be allowed to occur. When California's economy recovers, its bonds should rise. And meanwhile investors can enjoy the CMF's yield, now nearing 7%.

2. FirstTrust Nasdaq ABA Community Banking Fund (QABA) n/a

One of the jewels of the American financial system is its network of small community banks and credit unions that make money the old-fashioned way; lending to burrowers they know and trust. Credit Unions are owned by their members, but the QABA tracks 98 small publicly traded banks that have largely avoided the excesses of their national and regional peers. Its a brand new fund with the consequent liquidity risk.

1. iShares US Home Construction Index (ITB) -0.42%ytd

No industry is more dependent on the fortunes the American economy than residential construction. Home building one of the few sectors still not off its November lows, and residential home prices are still in freefall. When home values begin to recover, however, and stocks of existing homes are depleted, the 28 names inthe ITB will benefit from the revival of the industry.

Disclosure: None