ETF STRATEGIES FOR AN UNCERTAIN MARKET: A RECAP

We recently completed a five-part series on using exchange-traded funds (ETFs) during uncertain markets. Apparently, the series was very popular and I received many e-mails from Alert readers asking me to summarize and recap the basics of each. So, by popular demand, here is a listing and brief overview of each of the ETF Strategies for an Uncertain Market.

PART I — USING SHORT ETFS

Sometimes the market trends lower. When this happens, the best way to take advantage of the downdraft is by using ETFs that "short" the major indices. Here is a list of some of my favorite bear market ETFs.

PART II — USING SECTOR FUNDS

I love sector ETFs because they allow you to "pick your spots" as an investor. If there’s a general decline in place in the major market averages, you can move your money into areas that aren’t affected by the overall trend. And the beauty of using sector ETFs is that they don’t just work in a down market, they also work equally well in sideways and bull markets. Here is a table with a few of my favorite sector plays.

PART III — USING BOND ETFS DURING TOUGH TIMES

One of the best places to be in times of market turmoil is stodgy old bonds. However, you can’t be in just any bonds. I am talking here about the safety and performance of U.S. Treasury bonds. Back in the last bear market, there weren’t yet any ETFs tied to the fortunes of short-term Treasury bonds. Fortunately, that has changed. We now have the iShares Lehman 1-3 Year Treasury Bond (SHY). This ETF — with the cute little name of "SHY" — is a great way to play things when times are tough. It’s also a great way for income investors to get better than a 4% yield on their money.

My other favorite bond ETF is the iShares Lehman 20+ Year Treasury Bond (TLT). Since about mid-May, long-term Treasury bonds have been in an uptrend. That ascent has accelerated since the beginning of July. Long-term Treasury bonds have proven themselves time and time again as stalwart investments during rocky times for stocks, and the most recent bear market is no exception.

PART IV — CAPITALIZING ON COMMODITIES

Before commodities ETFs hit the market, investors who wanted to participate in bull markets in gold, silver, oil or other commodities had to venture into the treacherous waters of the futures markets. It was not a good place to be unless you were a very experienced trader. Fortunately, that has all changed thanks to the following commodities ETFs:

PART V — USING INDEX ETFS TO "BUY THE MARKET"

One of the best things about ETFs is that they allow you to get exposure to various parts of the market, including the major market indices. ETFs started becoming popular during the 1990s, when investors who wanted exposure to the tech sector realized that it was a lot easier, and a lot cheaper, to buy the Nasdaq 100 via the QQQQ than it was to buy into a mutual fund offering the same exposure.

Another great way to "buy the market" using ETFs is by getting exposure to perhaps the best measure of overall market strength, the S&P 500 Index. Through the S&P 500 SPDRs (SPY), commonly know as "spiders," investors can basically own the 500-largest publicly traded companies in one easy, convenient and inexpensive ETF.

For investors who like to expand their exposure to companies with a little less bulk than just the largest 100 Nasdaq stocks or the 500 biggest public companies, there’s an ETF tailor-made for you. It’s the iShares Russell 2000 Index (IWM). This ETF allows you to buy into the small-capitalization sector of the U.S. equity market.

Of course, all of these five strategies on how to use ETFs in an uncertain market can be found throughout both my Successful Investing and ETF Trader advisory services. If you’d like to find out more about how we employ these tools in our investment arsenal, I invite you to click on the links below.

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