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Thursday, December 23, 2010

Best ETFs to Buy for 2011 Smartest Way to Play the Hottest Sectors

Best ETFs to Buy for 2011 Smartest Way to Play the Hottest Sectors : With the danger of European debt contagion, increasing tensions in Korea, concerns of inflation in China, new investigations into insider trading violations, more regulatory pressure on financial services, and a Congress that is struggling to come up with a budget and avoid a government shutdown, it is amazing that the stock market has set a new two-year high. Against the backdrop of unfavorable daily headlines are the recovering U.S. and world economies, and a Fed that continues to pump new money into the equity markets.

If the S&P 500 continues to hold above the support line at 1,174, the likelihood of a solid breakout early in the new year is very high. But some sectors are likely to fare better than others, and the best way for investors to play sector strength is through exchange-traded funds (ETFs). So I have put together a list of the ETFs to buy that are showing technical strength, giving them greater odds of continuing higher in 2011.

PowerShares QQQ Trust ETF (QQQQ)
3 Hidden Takeover Targets to Double Your Money Known fondly as “the Qs,” the PowerShares QQQ Trust ETF’s (NASDAQ: QQQQ) has generally tracked the weekly performance of the Nasdaq 100 Index, which includes all non-financial stocks in the Nasdasq. If the Nasdaq hits my 12-month target of 3,700, investors should achieve a handsome return from this volatile performer.

PowerShares DB Base Metals ETF (DBB)
Commodities should generally outperform the market in 2011 with industrial-use metals leading the sector. Since the PowerShares DB Base Metals ETF (NYSE: DBB) is composed of futures contracts on some of the most widely used metals, such as aluminum, zinc and copper, it is a strong candidate for a powerful move north in 2011.

ProShares Short 20+ Year Treasury ETF (TBF)
The ProShares Short 20+ Year Treasury ETF (NYSE: TBF) moves inverse to the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index.

The trend for Treasury prices is sharply down, supported by Federal Reserve pressure to increase interest rates. Since history has shown that it usually behooves investors not to fight the Fed, this appears to be an investment that is in line with their goal to increase interest rates.

Guggenheim Solar ETF (TAN)
The Guggenheim Solar ETF (NYSE: TAN) seeks to replicate the performance of the MAC Global Solar Energy Index. Technically, the ETF is trading below its 200-day moving average at $7.80, but only by a small amount.

For those who wish to bottom fish, this may be a great long-term investment. The sun appears to be breaking through on this industry, and by investing in a fund with a global perspective, investors have the additional benefit of diversification into emerging markets. It is rumored that China is considering price supports for solar, and if that materializes next year, this ETF could break into full sunlight.

iShares Dow Jones U.S. Select Medical Devices Index ETF (IHI)
The iShares Dow Jones U.S. Select Medical Devices Index ETF (NYSE: IHI), which seeks to mirror the performance of the Dow Jones U.S. Select Medical Equipment Index, could benefit from the recent challenges to the Obama health care program.

In November, IHI broke above its 200-day moving average at $55 and jumped to $59 in two weeks. Heavy upside volume has accompanied the advance. A break above the November 2008 high of $65 could vault the stock to $80-$90.
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