ETF STRATEGIES FOR AN UNCERTAIN MARKET: PART II — USING SECTOR FUNDS

In part one of our five-part series on ETF strategies for an uncertain market, we discussed the new ETFs out there designed to take advantage of a decline in the overall equity markets. This week we will turn our attention to another area of the ETF universe that can help you profit when everything else is sliding — sector ETFs.

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.

The basic theory behind sector ETFs is that they allow investors to get exposure to specific areas of the market. As you’ve already learned, there has been an explosion of ETF offerings designed for investors who are partial to nearly every market segment. At last count — and this changes nearly every week as new ETFs are brought to market — there were 273 ETFs listed on U.S. stock exchanges.

In times of uncertainty, when there is no clear or discernable trend in the broad equities market, it is very difficult to make money without using sector funds and picking your spots.

In my Successful Investing service, we’ve used a combination of sector ETFs to help us produce an 8% gain throughout the first six months of the year. Compare that to a general market performance, -1%, measured by the S&P 500 Index, and you can see what a powerful tool investing in sectors can be.

In my ETF Trader service, we used sector ETFs to capture an 18% gain through the first half of 2006.

The key to using sector ETFs is first to familiarize yourself with the many different offerings available. I like to use Yahoo! Finance to do a lot of my initial research, but there are many other good, free sources of information out there on ETFs. Subscribers to Successful Investing get a report every Friday that contains all of the performance details of every ETF out there.

The table above is just a very small sample of the various sector ETFs out there you all have to choose from. The ETF sectors include finance, healthcare, basic materials, energy, consumer staples, real estate, technology, utilities and even commodities. This short list doesn’t even begin to scratch the surface.

If you are looking for ways to pump up your portfolio by using sector ETFs, we can help. I invite you to click on the links below for more information on how it’s done.

Click here to learn more about Successful Investing

Click here to learn more about ETF Trader