Financial ETFs: Is It Safe to Go In the Water?

The depressed financial sector has investors champing at the bit to get back into those exchange traded funds (ETFs). The sector is ripe for temptation: after all, once it does turn around, it could help investors reap some nice rewards.

Michael Krause for Seeking Alpha points out that investors can't rely on earnings predictions, since they can often be unreliable. Instead, the results show that while the financial sector is bleeding, there have been some profits, which implies the worst is behind us.

Estimates for the full year are still declining, and earnings are predicted to remain down for some time. But if the forecasts are correct, the sector is on pace to start posting steadily higher quarterly earnings in later quarters.

Is it safe to get back in? We think investors need to stick to the plan: don't get in until the trend line is crossed (200-day moving average). Some of these funds have quite a ways to go before that happens.

• Regional Bank HOLDRs (RKH), 8.8% below trend line
• Financial Select Sector SPDR (XLF), 10.8% below trend line
• iShares Dow Jones US Broker-Dealers (IAI), 9.7% below trend line

The Market Will Eventually Swing Back, But Which ETFs Can We Turn To?

It doesn't seem like it now, but the markets won't always be depressed and there will come a time to get back into exchange traded funds (ETFs).

But will the ETF marketplace benefit when the pendulum swings back? The debate is still hot concerning the market's recent progress and whether the worst is behind us yet. Investors should be ready to be in a good position to capture the next upswing, whenever it takes place.

Investors who have been in cash as they've waited for the markets to recover are going to start looking around for places to put their money back in, and ETFs are going to prove to be an attractive option for them. They offer low fees, intraday trading, transparency and quick diversification. As word of them spreads, we predict big growth in them because of their attractiveness.

Billy Fisher for The Street spoke to Mark Luschini, a strategist for Janney Montgomery Scott, who reports some probable areas set up for a prolonged recovery-primarily financials and consumer discretionary. ETF investors should consider positions in:

• Financial Select SPDR (XLF), down 8.4% year-to-date
• Vanguard Financials (VFH), down 7.6% year-to-date
• iShares Dow Jones U.S. Financial Sector (ITF), up 0.3% year-to-date
• Vangurd Consumer Discretionary (VCR), down 1.9% year-to-date
• PowerShares Consumer Discretionary (PEZ), down 3.6% year-to-date
• Consumer Discretionary SPDR (XLY), up 0.6% year-to-date

Financials have taken their share of the beating, so any upward trend is going to help them shine.

We recommend that you wait until any funds you're eying cross their trend lines, however. Don't just get in because you think an area is going to turn around. Take a look at our strategy for getting back in.

Financial ETFs Can't Get A Break

That glimmer of hope the financial sector had experienced seems to have stopped for now, as financial stocks and exchange traded funds (ETFs) began their downward slide on Thursday, and it continued on into Friday.

The sector as a whole last week was down about 5%, and the funds have weathered recent news that the credit sector's troubles aren't exactly over.

Insurer American International Group (AIG) announced its second consecutive quarterly loss on Friday, and Citigroup (C) said it has plans to shed $500 billion in assets, including making more job cuts.

Alan Greenspan, former Federal Reserve chairman, says the worst of the credit crunch has passed, but U.S. home prices are not ready to turnaround yet, and U.S. growth will continue its crawl.

Among the financial-sector ETFs available:

• Financial Select Sector SPDR (XLF), down 8.4% year-to-date
• iShares Dow Jones U.S.Financial Sector Index Fund (IYF), down 7.8% year-to-date
• Vanguard Financials (VFH), down 8.1% year-to-date
• PowerShares Dynamic Banking Portfolio (PJB), up 2.4% year-to-date

European Large-Caps On Their Way Up To Help ETFs

Although the U.S.dollar is weak, and the credit crunch has tightened the cash flow, European large-caps don't seem to be feeling this.

Exchange traded funds (ETFs) that hold European large-cap stocks include Vanguard European Stock (VGK) and the iShares S&P Europe 350 (IEV), both of which are down year-to-date, but have been ticking back up during the past four weeks.

VGK in the last month has risen 2.1%, but is down 3.1% year-to-date. IEV is up 1.7% in the last month, but down 3.4% year-to-date.

VGK is made up of bigger firms, while IEV is actually five years older. IEV holds 600 companies while VGK holds 348. The ETFs track different indexes, the MSCI Europe Index for IEV and the S&P Europe 350 Index for VGK.

Both ETFs give exposure to large, Western European companies and currencies, reports Joanne Von Alroth for Investor's Business Daily. The large-caps that make up these funds have performed well recently.

But not all is rosy in Europe: the European Union is battling 3% inflation, a credit crisis and high food prices. Some retailers have seen sales fall. But there's optimism, too, since in April both France and the United Kingdom saw their highest monthly benchmark index gains in nearly five years.

Insurer AIG's Losses Leave ETFs Mixed; Citigroup Making Changes

Insurance exchange traded funds (ETFs) were mixed in early trading today after insurer American International Group Inc. (AIG) announced larger-than-expected losses.

The company lost $7.81 billion, the second consecutive quarterly loss. The losses did send anxiety through the general markets, though, and sparked more concerns about the global financial system, reports Tim Paradis for the Associated Press.

AIG is the world's largest insurer. It's a component of both the iShares Dow Jones US Insurance (IAK, 16.1%) and KBW Insurance (KIE, 7.1%). Year-to-date, the funds are down 12.2% and 8.2% respectively.

Meanwhile, Citigroup (C) said today that it plans to shed $500 billion in assets and grow its revenue by 9%. That would bring the bank's total assets down to $1.7 trillion, reports Madlen Read for the Associated Press. Growing the assets will include, in part, job cuts in addition to the 13,200 that have already taken place since last summer.

Citigroup is 5.9% of the Financial Select Sector SPDR (XLF), as well as 2% of the iShares S&P Global Financials (IXG). XLF is down 8..4% year-to-date, and IXG is down 5.8%.

Now Is It Time to Invest in Financial ETFs?

Everyone's looking for signs that the markets have rebounded and some stocks are at rock-bottom prices, but does that mean it's a good idea to get in on financial stocks and exchange traded funds (ETFs) right now?

Matt Krantz for USA Today says that the recent history of financials shouldn't mar your opinion of them too much. The problem now, of course, is calling the bottom. You can never know if the problem is over, or the extent of it, until some time passes.

Krantz suggests some ETFs that aren't 100% focused on financials. For example, the Vanguard Value (VTV) is 27% financial. If the crisis has hit bottom, you could stand to benefit from any recovery. If it worsens, your entire portfolio won't be sunk, as the fund is also allocated in energy, health care and industrials.

Year-to-date, this fund is down 3%.

We say: pack up the crystal ball.

The surest way to protect yourself is by firmly sticking to your investment plan. Don't allow thought, hope, emotion or speculation to cloud your decision-making. Low prices are very tempting, but if a fund, be it a financial ETF or something else, is not above its 200-day moving average, keep an eye on it but pass it by until it does.

Instead of wondering if there's a turnaround in a certain sector and rolling the dice, why not just be in those areas that are already performing?

Disappointing Homebuilding Earnings Drags ETFs

The homebuilding industry announced disappointing first-quarter earnings, dragging down related exchange traded funds (ETFs).

The markets were feeling optimistic in the last few weeks because of positive earnings numbers from industries that don't count themselves as part of the financial or homebuilding sectors, reports Madlen Read for the Associated Press. But in the last two sessions, the confidence seems be slowly chipping away.

Homebuilder D.R. Horton reported a quarterly loss of $1.3 billion and cut its dividend in half, to 7.5 cents a share. The company is 4.4% of the SPDR S&P Homebuilders (XHB) and 5.7% of the iShares Dow Jones US Home Construction (ITB). Both are down midday, but so far have enjoyed a strong year: they're both up 17.6% year-to-date.

In the financial sector, it was disappointing earnings all around: Fannie Mae posted a quarterly loss of $2.2 billion; UBS reported a loss of almost $11 billion; and Wachovia said it's almost doubling its previously reported loss to $708 million.

Financial ETFs such as the iShares Dow Jones US Financial Services (IYG) and Regional Bank HOLDRs (RKH) were mostly flat on the news, however. IYG is down 5.5% year-to-date, while RKH is down 3.4% year-to-date.

Financial ETFs, Markets Stumble After Buyout Deal Rumored to Be Failing

Financial stocks and exchange traded funds (ETFs) fell midday after investors became worried that Bank of America (BAC) might not complete a proposed buyout of Countrywide Financial (CFC).

A brokerage said Bank of America was either going to renegotiate the deal or walk away from it altogether, reports Jennifer Coogan for Reuters. The news kicked the market while it was already down from the failed Yahoo (YHOO)/Microsoft (MSFT) deal.

On the upside, the service sector defied expectations and grew in April, reports Burton Frierson for Reuters. It was the first time the sector grew in four months. It covers financial, airlines, hotels and restaurants and represents roughly 80% of the U.S. economy.

The market responded to the report positively, but then resumed its southward direction.

Financial ETFs were down in trading today, as well. Among them:

• Regional Bank HOLDRs (RKH): down 1.6% year-to-date; Bank of America is 9.1%
• iShares Dow Jones US Financial Services (IYG): down 4% year-to-date; Bank of America is 10.9%
• Vanguard Financials (VFH): down 2.7% year-to-date; Bank of America is 6.6%

Fed Cuts Rates; Will the Seventh Time Be a Charm for ETFs?

Exchange traded funds (ETFs) and the markets waited with optimism for the Federal Reserve's rate cut today, which was the quarter point that had been expected.

This puts the federal funds rate at its lowest level since December 2004, reports Mark Felsenthal for the Associated Press. It's the seventh cut and has brought rates down by 3.25% since mid-September.

Also, it was reported today that the economy grew 0.6% in the first quarter.

The growth was the same as it was in the final quarter of 2007, reports Jeannine Aversa for the Associated Press. Therefore, according to the classic definition of the word "recession," we're not in one. A recession would mean a retraction of the economy, not growth - no matter how feeble it might be.

Predictions had been that the gross domestic product (GDP) would weaken to 0.5%, and earlier this year the thinking was that the economy would actually shift into reverse.

Rising Interest Rates In Bond ETFs Signaling Strength As Fed Meets?

Rising interest rates within the bond market are signaling a change within investor sentiment that could possibly boost stocks and exchange traded funds (ETFs) in the coming months. It appears that the financial sector may be ready to rebound, and equities may start to head in the right direction.

This change in sentiment comes just in time for the Federal Reserve's meeting today and tomorrow. The public had been awaiting another rate cut of around one-half a point. Now, the feeling that one-fourth a point cut may do, and be the last in a two-year series, explains Carl Gutierrez for Forbes.

The market may not feel that the economy is dropping so much as before, and money is beginning to flow more steadily. Friday's global bond selloff was triggered by inflation in Japan reaching a 10-year high, in tandem with better-than-anticipated first quarter earnings reports in the United States.

As yields around the world stabilize, one analyst says that it removes the incentive for investors to take money out of the United States, leading to stabilization.

SPDR Lehman International Treasury Bond (BWX) is up 5.2% year-to-date and has a 3.83% yield. iShares Lehman 7-10 Year Treasury Bond (IEF) is up 3% year-to-date and has a 4.05% yield.

Has the Bottom Arrived for Financial ETFs?

Are financial exchange traded funds (ETFs) turning the corner?

Steve Halpern for Blogging Stocks reports that the Financial Select Sector SPDR (XLF) has barely fallen since the Bear Stearns (BSC) collapse. In fact, the fund is up 15.9% since the collapse. The iShares Dow Jones US Broker-Dealers (IAI) is up 21.8% since the collapse.

The editor of the Oxford Club, Louis Basenese, feels that when the bad news keeps coming, but prices don't head notably south, the bottom is near.

Basenese also feels that downside may be protected because the Fed bailed out Bear Stearns, which in turn, put a safety net on the sector.  Consider the last time XLF bottomed out: March 2003 and gave back 113% to those brave souls, with dividends over the next four years.

These funds are sitting below their trend lines (the 200-day moving average). If you're really itching to get in, these funds are above their 50-day averages. Use that as your sell point instead.

Private Equity Savior To Financial Sector And ETFs

Private-equity exchange traded funds (ETFs) have had a difficult time providing the exact targeted exposure that ETFs normally deliver, but investors willing and brave enough to call the bottom in financials could benefit. It's a risky thing to do, though.

Private equity firms have recently been investing billions in cash-strapped U.S. banks, but these deals have come at the expense of existing shareholders by diluting their shares, according to the Dow Jones Newswires. In some cases, shares have been diluted by as much as 70%.

Private equity ETFs are for investors who want to participate in private equity's gains without having their money locked up, says Invesco. Only a handful of listed firms invest in private equity, with mixed strategies and results.

ETFs that could benefit from this shot in the arm:

• Select Sector SPDR Financial (XLF), down 7.9% year-to-date
• KBW Bank ETF (KBE), down 6.1% year-to-date
• PowerShares Listed Private Equity Portfolio (PSP), down 8.8% year-to-date
• PowerShares International Listed Private Equity Portfolio (PFP), down 7.6% year-to-date
• Opta S&P Listed Private Equity NR ETN (PPE), down 4.6% year-to-date

Bank of America's Dismal Earnings Drags Financial ETFs

Financial exchange traded funds (ETFs) took a hit in midday trading after Bank of America (BAC) reported that its profit fell 77% in the first quarter.

It was worse than expected, as analysts had been anticipating a profit of 41 cents per share, reports Ieva M. Augstums for the Associated Press. Instead, it reported earnings of 23 cents per share, compared with $1.16 per share a year earlier. Bank of America's stock was down 1.6% in midday trading.

The earnings report is weighing on the already troubled financial ETFs that count Bank of America as a major component.

• Regional Bank HOLDRs (RKH): Bank of America is 9.1% of the fund; down 7.3% year-to-date
• Financial Select Sector SPDR (XLF): BAC is 8.8%; down 8.8% year-to-date
• iShares Dow Jones US Financial Services (IYG): BAC is 11.7%; down 10.2% year-to-date

Earnings Show Good Signs And Help Tech and Financial ETFs

First quarter earnings reports are lifting exchange traded funds (ETFs) today.  Reports from Google (GOOG) and Citigroup (C) helped ease investors minds about corporate profits, so much so that it has sent the Dow up over 250 points in midday trading.

Google's first-quarter earnings and revenue growth topped analysts' expectations, reports Tim Pardis of Associate Press.  Their performance indicates Internet advertising remains robust.  iShares Dow Jones U.S. Technology (IYW) has 5.4% given to Google and is up over 3% in midday trading.  Technology Select Sector SPDR (XLK) holds 5% of the company and is up over 2%.  Technology related ETF, PowerShares QQQ (QQQQ) is up over 3%.

Citigroup also reported earnings with not big surprises.  The company reported a loss of $5.1 billion in the first quarter, but it was less than half of the loss from the previous quarter.  Among the financial related ETFs are the Financial Select Sector SPDR (XLF) that holds 5.9% of Citigroup and is up over 3% in midday trading.  iShares Dow Jones US Financial Services (IYG) has 7.6% of the company and is up almost 4%.

Mixed Earnings Reports Give Mixed ETF Results

Merrill Lynch (MER ) posted a first-quarter loss this morning, but so far the broker-dealers exchange traded fund (ETF) seems to be keeping quiet.

The world's largest brokerage said it would cut 3,000 jobs after more than $6.5 billion in fresh write-downs. It's the third consecutive quarterly loss, reports Joe Bel Bruno for the Associated Press. The firm's CEO went on to warn that the next few quarters could be similarly rough.

Yesterday, the Financial Select Sector SPDRs (XLF) rose for the third consecutive trading day. It's up slightly today, as well - will the winning streak continue? Merrill Lynch is 2% of the fund. Year-to-date it's down 11.3%.

The iShares Dow Jones US Broker-Dealers (IAI) is down just 0.05% midday, and year-to-date it's off by 23.8%. Merrill Lynch is 6.5% of the fund.

Pfizer (PFE) reported that is first-quarter profit fell by 18%, because of generic drug competition, says the Associated Press. The numbers were short of estimates. The company also was hurt by the loss of patent protections for drugs such as Norvasc and Zyrtec. The world's best-selling drug, Lipitor, is going to lose its patent protection in 2010. It's a key source of revenue for the company.

Pfizer is 17.6% of the Pharmaceutical HOLDRs (PPH), which are down just over 1% midday. Year-to-date, it's down 10.8%.

IBM (IBM) delivered some good news: they boasted a 26% rise in profits, surpassing expectations, according to Tim Paradis for the Associated Press.

IBM is 31.89% of the Internet Architecture HOLDRs (IAH), which is up less than 1% midday. Year-to-date, it's down 8.2%.

Wachovia's Gloomy Report a Drag for Financial ETFs

Wachovia (WB) reported a surprise first-quarter loss, hitting financial exchange traded funds (ETFs) hard.

The Regional Bank HOLDRs (RKH) fell to its lowest point since March 17, reports Wanfeng Zhou for Thomson Financial. Wachovia is the fund's third-largest holding, with 10.3% of assets.

The iShares Dow Jones U.S. Financial Services (IYG) also dipped to its lowest point since March 17. Wachovia makes up 3.7% of the fund.

The Financial Select Sector SPDR (XLF) also fell to its lowest price since April 1, and it has lost 6.7% since April 7, the last day it posted a gain, reports Tomi Kilgore for Thomson Financial. Wachovia is 3% of the fund, its eight-largest component.

While liquidity in the credit markets is improving, the crisis isn't over, reports Ed Carson for Investor's Business Daily. Some experts are saying "the worst" is over, mostly based on the fact that the Federal Reserve is allowing investment banks to borrow directly from them for the first time since the Great Depression.

The easiest way to know when you should get back in is to wait until these funds cross back over their trend lines (200-day moving average). Right now, the funds we mentioned above are sitting far below that key point:

• RKH, 13.1% below; down 9.8% year-to-date
• XLF, 16.1% below; down 13.4% year-to-date
• IYG, 9.9% below; down 14.6% year-to-date

Switzerland and ETF Could Be On the Mend, But More Woes Predicted

Switzerland recently got socked by the global credit crunch, but the country and its exchange traded fund (ETF) seem to be in recovery mode.

The Swiss bank UBS (UBS) had write-downs in the billions last week. Around the same time, mutual funds investing in the country began experiencing inflows. Year-to-date, those funds have reported $2.4 billion in inflows, the bulk of which took place last week, reports Trang Ho for Investor's Business Daily.

It's a turnaround from last year, when those funds experienced $280 million in outflows.

iShares MSCI Switzerland (EWL) has gained 1% during the past year. Year-to-date, it's down 0.6%, but in the last month, it's moved up 2.9%.

One economist predicts more reports of losses and more financial turmoil through the end of the second quarter.

The financial sector accounts for 15% of the Swiss gross domestic product (GDP), and it could make or break the overall economy. The financial sector in the ETF is the third heaviest weighting at 22.6%. The top two are healthcare (30.4%) and consumer goods (25.5%).

UBS is the third-largest holding in the fund, as well, with 5.6% of the assets. The other two holdings have a bigger share of the assets: Nestle has 18.3% and Roche Holding has 14.1%.

Sweden Has More Than Ikea - It Has Lessons for Financial Sector and ETFs, Too

The financial meltdown in the United States has wreaked havoc on the markets and exchange traded funds (ETFs). At times, it might have seemed that there would be no end to this, but all anyone has to do is look at Sweden to see how a country can emerge from a collapse of its financial system.

It all sounds so familiar: deregulation in the credit markets in 1985 led to a lending boom. Interest rates were low, supervision was lax and lenders were inexperienced. Real estate skyrocketed. Then in the early 1990s, the bubble burst: property values plunged, unemployment quadrupled in three years.

Although it's too late to avoid the kind of bust Sweden experienced, it's not too late for the United States to take a lesson or two from its recovery. Joellen Perry for the Wall Street Journal says Sweden took radical steps to turn things around.

Politicians were united and ensured that a major financial freeze did not occur. Sweden guaranteed its entire banking system of 114 banks from losses, imposed strict credit terms and forced banks getting injections to surrender shares to the government.

The United States isn't in as much danger as Sweden had been, and can still take steps to avoid a protracted downturn. But our government already appears to be applying the lessons of the crisis, evidenced in the government-backed sale of Bear Stearns. An economist says it's exactly how Sweden handled things.

Sweden's economy these days is seen as solid, and the central bank raised its key rate to 4.25% to fight inflation. The country has also managed to dodge the subprime crisis. Year-to-date, iShares MSCI Sweden (EWD) is up 1.9%. In the last month, it has risen 11.8%.

The fund has 23.2% of its assets allocated in the financial sector, the second-largest weighting. The top sector in the fund is industrial materials, which is 35.1% of assets.

Are WaMu Talks a Sign Wall Street and ETFs Are Picking Up the Subprime Pieces?

Corporate wheeling and dealing is boosting stocks and exchange traded funds (ETFs) today, particularly in the financial sector.

Washington Mutual Inc. (WM) could get a $5 billion investment from private equity firms, reports Tim Paradis for the Associated Press. The company has lost big in the subprime mortgage mess, and it's talking with a buyout shop and other investors about selling a stake in itself in exchange for cash.

Washington Mutual isn't a major holding in the financial ETFs we track, but the deal talks are being seen as a positive sign that investors are optimistic about recovery.

A strategist cautions that volatility isn't exactly over - it's earnings season, and investor anxiety could mount if the banks reveal bigger losses than expected.

• Regional Bank HOLDRs (RKH), up 2% midday
• Financial Select Sector SPDR (XLF), up 1.7% midday
• iShares Dow Jones US Financial Services (IYG), up 2.3% midday

While the Financial Mess Hurts Markets and ETFs, Our Responses are Human Nature

The financial system is in a mess, and it's taken a toll on the markets and exchange traded funds (ETFs), among many other things. Financial regulation in our country, as a result, is facing an overhaul, and the Treasury Department's Secretary Hank Paulson has just issued a report on the subject.

The existing political and regulatory regimes in place now contributed to our current problems, although they were intended as attempts to address the perceived problems of the times in which they were created, reports Lawrence B. Lindsey for The Wall Street Journal.

A "culture of corporate greed" is the rhetoric, and political figures have no place to point a finger, nor anyone have a need to blame. In an attempt to get the regulation perfect, the manifestation of the human condition is echoed throughout the markets.

The three rules to remember are:

• Both markets and the political process are inherently pro-cyclical. When things are up, markets and politicians will push things to excess and vice-versa.
• Politicians and the regulators they hire and delegate to will layer on new and sometimes mutually exclusive objectives for the financial service industry. This comes from the first rule, as Congress had no sooner set highly restrictive lending standards (after the Savings and Loan scandal), then they demanded an ease so that more people could get mortgages. Politicians may want things that are contradictory, hypocritical or infeasible.
• Regulatory institutions created to carry out conflicting missions became entrenched, making any changes a political hot potato. Regulations should be clear, simple and transparent. This makes them less subject to market manipulations, and it is more important than institutional design.

Once this is all over and a new market cycle begins, will we learn the lessons of basic human behavior that led to this mess in the first place?

ETF Investors Appear Divided Over Future of Financials

Financial exchange traded funds (ETFs) have been heading north this week. It's got many wondering if the Bear Stearns (BSC) mess was the end of the crisis...or, more ominously, just the beginning.

The up tick in these funds naturally has lead to a downturn in ETFs that short the sector. The ProShares UltraShort Financials (SKF) is down 12.1% in the last week. Compare that with the Financial Select Sector SPDR (XLF), up 5.9% in the last week, or the iShares S&P Global Financials (IXG), which is up 6.3%.

Matthew Ganucheau for Seeking Alpha wonders if those buying into financials right now know something he doesn't, or if they're just overly optimistic and ignoring the fundamentals.

In these volatile markets, it's a wise idea not to throw out your strategy and chase performance. While these funds did have a good week, they still remain below their 200-day moving averages. Waiting until they cross that threshold and exhibit consistent performance is your wisest move, especially while the market still tries to make up its mind about whether this crisis has ended.

Although you can rattle off terms such as "credit default swap" and "subprime lending," do you actually know what you're saying? If you're not entirely sure and want this whole mess broken down into layman's terms, check out this episode of Fresh Air on NPR. Law professor Michael Greenberger breaks it down in excellent fashion.

Vanguard Wants to Put Its Arms Around the World With New ETF

On the heels of iShares' new all-world exchange traded fund (ETF), Vanguard is trying to enter the fray with its own similar kind of fund.

They've registered with the Securities and Exchange Commission (SEC) for the Vanguard Global Stock Index Fund, which would offer three share classes: investor shares, institutional shares and ETF shares. It's anticipated to launch in the second quarter of 2008.

The fund aims to track the FTSE All-World Index, a market-cap weighted index of large- and mid-cap global stocks in 48 countries. About 55% of the index will be made up of stocks outside the United States.

Vanguard's new fund will join the iShares MSCI ACWI Index Fund (ACWI) as the first two true all-world ETFs. The country breakdown for the iShares fund has the as its top five countries the United States, 41.8%; the United Kingdom, 9.6%; Japan, 8.6%; France, 4.7%; Germany, 4.1%.

Across the sectors, it's most heavily weighted in financials at 22.5%. Energy is 11.7% and Industrials are 11.2%. Exxon Mobil (XOM) is the largest constituent, representing 1.6% of the holdings. General Electric (GE) is 1.2%.

It'll be interesting to compare the two funds side-by-side once Vanguard's is up and running.

Bernanke Says Recession is Possible; Stocks and ETFs Hesitate

Stocks and exchange traded funds (ETFs) shuddered slightly when Federal Reserve Chairman Ben Bernanke said the "R" word in Congressional testimony this morning.

Bernanke said the economy could weaken in the first half of this year, meaning the United States is finally in a recession, reports Joe Bel Bruno for the Associated Press. And furthermore, this time he offered no predictions of further interest rate cuts.

Some profit-taking is to be expected after yesterday's stellar start to the second quarter, but it remains to be seen what impact beyond that Bernanke's testimony will have. Yesterday, the markets were able to shrug off bad news in the financial sector. Can they shrug off hints of a nearing recession?

The big day has some wondering if we've reached a bottom for the markets and the credit crisis. Of course, this isn't the first big day for the markets. The first quarter saw several days of triple-digit gains.

Jordan Kahn for Seeking Alpha suggests that it's a good sign that despite negative headlines, the markets simply shrugged and continued on. It's true - it seems that most other days, bad news was only followed by plunging stocks.

TrimTabs CEO Charles Biderman for Forbes says indicators are hinting that the funk could be hitting its end. Wages of U.S. workers rose 4.4% year-over-year in the past five weeks, and the economy added about 100,000 jobs in March, based on withholdings.

As has been the case with the markets lately, only a wait-and-see approach will work. If the volatility has taught us anything, it's that nothing is a sure thing.

New Quarter, New Start for Some ETFs

Financial, homebuilder and retail exchange traded funds (ETFs) were among the biggest winners on a day when the Dow Jones industrial average rose nearly 400 points.

Although Swiss bank UBS (UBS) and Deutsche Bank (DB) announced write-downs in the billions, UBS issued new shares to help lift their balance sheets. With that, investors seemed willing to make some bets that the worst of the damage from the credit crisis is behind them, says Joe Bel Bruno for the Associated Press.

Another boost of confidence came from the Institute for Supply Management, which said its March index of national manufacturing activity rose to 48.6. The number indicates a contraction, albeit a slower one than in February. Construction spending numbers also were better than expected.

The top unleveraged ETFs today were:

• First Trust Consumer Staples Alpha DEX Fund (FXG), up 13.2%
• PowerShares Dynamic Retail Portfolio (PMR), up 8.4%
• iShares Dow Jones U.S. Broker-Dealers (IAI), up 8.1%
• SPDR S&P Homebuilders (XHB), up 8%
• iShares Dow Jones U.S. Financial Services Index Fund (IYG), up 7.8%

For full disclosure, some of Tom Lydon's clients own shares of XHB.

Big Banks Announce Write-Downs, But Financial ETFs Turn the Other Cheek

Swiss bank UBS (UBS) revealed big damage from exposure to the U.S. subprime crisis, but financial exchange traded funds (ETFs) don't appear to be bearing the scars.

The company said today that it expects write-downs of about $19 billion, reports Onna Coray for the Associated Press. That brings its total number of write-downs to $40 billion in the last nine months, the largest of any bank to this point. UBS Chairman Marcel Ospel stepped down.

Germany's largest bank, Deutsche Bank AG (DB), announced a write-down of $4 billion.

Oddly, though, financial ETFs are soaring today. After UBS and Deutsche Bank announced their write-downs, the European banking sector shot up 3%. UBS shares soared more than 6%, and Deutsche Bank shot up more than 3%, reports CNBC. The iShares S&P Global Financials (IXG) is up more than 4.5% today. It holds 1.2% of UBS and 1.1% of Deutsche Bank.

iShares MSCI Switzerland (EWL) and iShares MSCI Germany (EWG) are up about 1.5% so far today. UBS is 5.6% of Switzerland's fund, while Deutsche Bank is 4.9% of Germany's.

The financial sector has been given a bit of a revival from U.S. Treasury Secretary Henry Paulson's proposal for an overhaul of the financial system.

This has got some wondering if the light has appeared at the end of the tunnel. Some are skeptical and feel that the temptation to go bargain hunting should be avoided until next year.

We agree - wait until the sector has steadied some and heads back above its 200-day moving average.

Financial ETFs Bounce Up After Paulson's Proposal - Will It Stick?

Is the government stepping in and hastening the bottom for financial exchange traded funds (ETFs)?

Treasury Secretary Henry Paulson came forward today with the most far-ranging overhaul of the financial regulatory system since the stock market crash of 1929. Among the features of the plan, reports Martin Crutsinger for the Associated Press, are:

• It would give the Federal Reserve more power to protect the stability of the entire financial system and merge day-to-day bank supervision into one agency (currently, there are five).
• One super agency would be in charge of business conduct and consumer protection.
• It would ask Congress to establish a federal Mortgage Origination Commission to set recommended minimum licensing standards for mortgage brokers. Many currently operate outside of federal regulation.

Democrats say that the plan doesn't go far enough to deal with abuses within the mortgage lending system and securities trading.

Financial ETFs appear to be feeling positive about the efforts so far in trading today. Both the Financial Select Sector SPDR (XLF) and the iShares Dow Jones US Financial Services (IYG) are up almost 2%. Will the good vibes continue?

Lehman Shares, Broker-Dealers ETF Fall After Fears Of Another Bank Collapse

After the collapse of Bear Stearns (BSC), it's only natural that investors take a look at other broker-dealers with nervous eyes and exchange traded funds (ETFs) suffer. After all, if it could happen to Bear, is anyone safe?

Today, the concern turned to Lehman Brothers (LEH) as rumors spread that the fourth largest investment bank in the United States could see a run similar to what happened to Bear Stearns. The fears sent Lehman Brothers' stock down nearly 10% in early trading, Reuters reports.

A Lehman spokeswoman said the rumors were "totally unfounded," which sent the stock back up, before once again heading back down.

Lehman is 6.6% of the iShares Dow Jones US Broker-Dealers (IAI), which is down 2.5% in intraday trading.

The company's CEO said the Fed's creation of a liquidity facility for dealers "takes the liquidity issue for the entire industry off the table." Lehman has also said that its holding company has $34 billion of assets it could sell, $64 billion it could borrow against, and subsidiaries with $99 billion of assets it could borrow against.

ETF Investors Want Visa To Be Where They Are, But They'll Have to Wait

Visa is a multi-billion dollar global credit card business and despite the initial public offering, the largest in U.S. history, the company will not be jumping into any financial exchange traded funds (ETFs) just yet.

Jefferey Ptak of Morningstar says that Visa will likely follow in Mastercard's (MA) footsteps, getting picked up by financial ETFs, it's just a matter of time.

John Spence for MarketWatch reports that the Visa (V) IPO raised about $18 billion last week, when the shares were priced at $44 above expected range. The stock jumped 28% the first day of trading and closed at $59.73 for Monday's session.

One ETF Visa could likely gain entree to sooner rather than later is the First Trust IPOX - 100 Index (FPX), which tracks an index of the top 100 IPOs. The fund adds IPOs on their seventh day of trading, to allow the excitement to fade some so that it doesn't create volatile movements in the fund. Visa's IPO took place on March 19, and the seventh trading day will be Friday. Keep an eye out.

Mastercard is a major holding of FPX, at 5.3% of assets. Someday, Visa also could be joining Mastercard in the iShares Dow Jones US Financial Sector (IYF).

New Home Sales Report Leaves Real Estate ETFs Glum

Real estate exchange traded funds (ETFs) took a hit today on the news that new home sales fell for the fourth consecutive month.

The Commerce Department says that sales were down 1.8%, the slowest pace in 13 years and a decline worse than what had been expected, reports Martin Crutsinger for the Associated Press.

The numbers come on the heels of yesterday's news that home prices fell by record levels in January.

The jury is still out on when this listing ship will begin to right itself, but many analysts believe the slump could last into 2009. Housing is being hurt by tighter lending conditions as banks continue to react to increasing mortgage defaults and hesitant prospective buyers, who are waiting to see if prices fall even further.

Real estate ETFs were lower by about 1.5% intraday on the glum news:

• iShares Dow Jones US Real Estate (IYR)
• iShares Cohen & Steers Realty Majors (ICF)
• DJ Wilshire REIT (RWR)

Financial and Real Estate Numbers Keep Markets, ETFs Busy

A flurry of activity and reports on Wall Street today sent exchange traded funds (ETFs) moving in every direction.

Financials took a hit on the news that Merrill Lynch & Co. Inc. (MER) had its earnings forecasts cut by JPMorgan Chase (JPM) and UBS AG, reports Kevin Plumberg for Reuters. Then Merrill turned around and downgraded Bank of America (BAC), PNC Financial (PNC) and SunTrust Banks (STI), saying that the collapse of the housing market will continue to hurt lending and home equity.

Financial ETFs are down slightly intraday:

• Regional Bank HOLDRs (RKH): JPMorgan Chase, 14.7%; Bank of America, 9.1%; PNC, 4.5%; SunTrust, 4.3%
• Financial Select Sector SPDR (XLF): Bank of America, 8.8%; JPMorgan Chase, 6.8%; Merrill Lynch, 2.1%; PNC, 1.1%; SunTrust, 1%
• iShares Dow Jones US Financial Services (IYG): Bank of America, 11.9%; JPMorgan Chase, 9.1%; Merrill Lynch, 2.7%; PNC, 1.4%; SunTrust, 1.4%.

The Conference Board reported this morning that its Consumer Confidence Index fell to 64.5 this month, from a revised 76.4 in February. The reading is a five-year low, and a far cry from the 73 that had been expected by analysts, reports Joe Bel Bruno for the Associated Press.

It's a strong sign that people are increasingly restricting their spending to the necessities amid fears that we're in a recession - but the decreased spending will only further weaken the economy.

Retail ETFs that could feel the effects of the news:

• SPDR S&P Retail (XRT)
• Retail HOLDRs (RTH)
• Consumer Discretionary SPDR (XLY)

Home prices also fell by record levels in January, by 10.7%, says Vinnee Tong for the Associated Press. It was the biggest decline in the Case-Shiller home price index's two-decade history. Spring is typically a strong sales time, though, and any notable improvements in the market might not be noticed until summer.

The worst-hit cities were Miami and Las Vegas, which were both hit by 19.3% drops. One economist says a pattern of improvement probably won't be seen until April, at the earliest.

This downbeat news comes on the heels of yesterday's positive news that existing home sales in the United States posted a surprise jump of 2%.

All these numbers have sent the price of oil gyrating as investors have begun selling on worries about the economy, while others are buying on news of the dollar's continued decline. Mercifully, the price of gas and diesel have pulled back some from their recent records, reports John Wilen for the Associated Press.

But analysts are saying that investors should continue to see choppy waters for oil as disagreement about the direction of the commodity persists. As the price see-saws, look for changes in these ETFs:

• United States Oil (USO)
• United States Natural Gas (UNG)
• iShares Dow Jones US Oil & Gas Exploration (IEO)
  

For full disclosure, some of Tom Lydon's clients own shares of RTH.

Amid Turmoil, Bear Stearns Launches the First Actively Managed ETF

The race has been won: amid a collapse and a possible buyout, Bear Stearns (BSC) actually found time to launch the first actively managed exchange traded fund (ETF).

The Bear Stearns Current Yield Fund (YYY) began trading today on the American Stock Exchange. The fund is a portfolio of short-term fixed income securities, including U.S. government securities, bank obligations, corporate debt obligations, mortgage-backed and asset-backed securities, municipal obligations, foreign corporate debt obligations, repurchase agreements and reverse repurchase agreements.

Many in the industry were surprised by the launch, says Rob Wherry for Smart Money. When J.P. Morgan's acquisition of Bear Stearns is complete, the fund will be re-branded with the J.P. Morgan name.

The holdings of the fund will be disclosed daily, and the portfolio manager has the discretion to choose securities for the fund.

Now that we've got the first actively managed ETF up and running, it will be interesting to watch and see if investors go for it. If there was any skepticism about an actively managed fund, will the Bear Stearns name on this one hurt it?

Either way, these funds are going to have to show good performance if they're going to attract money. If that happens, start looking for some well-known names to get in on the game, too.

Transportation ETF Thinks It Can, It Thinks It Can

The transportation exchange traded fund (ETF) appears to be chugging along, and some are taking the movements as a good sign for the rest of the economy.

Gary Gordon for ETF Expert believes this sector is a key barometer for a stock recovery. Dow theorists use it to decipher the trends of bulls and bears. Transporting goods from one place to another is a fundamental driver for the economy, making Dow Jones Transportation Index Fund (IYT) a key ETF to watch.

Gordon points out that while the media has been focused on the financial and consumer sectors, transportation has quietly been delivering the goods. Year to date, it's up 7.5%. In the last week, it's up 9.3%.

When the damage to our economy finally begins to repair itself, the losers of 2007 (financials, consumer discretionary and transportation) will lead in the recovery efforts.

Financial ETFs React Positively to JP Morgan's Increased Bear Stearns Offer

Financial exchange traded funds (ETFs) are showing renewed vigor after J.P. Morgan Chase & Co. (JPM) raised its Bear Stearns (BSC) offer from a paltry $2 a share to $10 a share.

J.P. Morgan also said it would bear the first $1 billion of any losses tied to the assets being financed in its buyout, reports Greg Morcroft for MarketWatch. The Federal Reserve will fund the remaining $29 billion.

The iShares Dow Jones US Broker-Dealers (IAI), of which Bear Stearns makes up 4.1%, is up nearly 4% in intraday trading. Other financial ETFs have been residing in positive territory this morning, as well, including Regional Bank HOLDRs (RKH), Financial Select Sector SPDR (XLF) and iShares Dow Jones US Financial Services (IYG).

Homebuilders ETFs Stage a Turnaround

Two exchange traded funds (ETFs) in one of last year's weakest sectors, home construction, are beginning to show renewed vigor.

In the last two weeks, both SPDR S&P Homebuilders (XHB) and iShares Dow Jones US Home Construction (ITB) are up 19.7% and 16.6%, respectively. Last year, XHB was down 48.1%, while ITB lost 58.4%.

The funds got another boost this morning when a trade group reported that existing home sales in the United States rose unexpectedly in February, by 2%, reports Wanfeng Zhou for Thomson Financial.

This doesn't mean the sector is fixed, though - sentiment is still near historic lows this month, according to the National Association of Home Builders. We're still in the midst of the worst housing slump since the Depression, and it's keeping buyers and financing in short supply.

The rate cuts by the Federal Reserve are giving a lift to the sector, though. And the House Financial Services Committee Chairman Barney Frank has announced a proposal for legislation to allow the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. If the program goes through, it would allow the FHA to provide up to $300 billion in new guarantees that would help refinance at-risk borrowers into viable mortgages.

If you're ready to do some bottom fishing, wait until XHB crosses its 200-day moving average and set an 8% stop loss.

Financial ETFs Look Different In the Afternoon

It just goes to show: these days, exchange traded funds (ETFs) and the market can turn on a dime, and today was a perfect case in point.

This morning, things kicked off nicely off yesterday's high. Financials were up, the price of oil was down. Investors were still aglow with the news that the Federal Reserve cut interest rates by three-fourths of a percent.

But it was a blink-and-you'll-miss-it turnaround: the Dow Jones industrial average fell nearly 300 points, giving back much of its 420 points gained on Tuesday, reports Tim Paradis for the Associated Press.

The metals ETFs remained down: iShares Silver Trust (SLV) lost 5.8%, while streetTRACKS Gold Shares (GLD) declined 3.6%. Agriculture also finished lower: PowerShares DB Agriculture (DBA) lost 2.3%, while Market Vectors Global Agribusiness (MOO) declined 6.1%.

But financials, which were the early stars this morning, eventually lost steam and turned south again:

• Financial Select Sector SPDR (XLF), down 2.6%
• Regional Bank HOLDRs (RKH), down 1.1%
• iShares Dow Jones US Broker-Dealers (IAI), down 3.8%

The moral here is to not get swept up in the frenzy and keep emotions out of it. Strong performance is good, but it needs to be strong over a period of time - not just a day or two. Chasing performance can only turn into a fruitless and losing game of whack-a-mole.

Wait - Financial ETFs Are Up and Commodities Are Down? What's Wrong With This Picture?

Have we entered a bizarro exchange traded fund (ETF) world?

First, financials and internet are staging a turnaround for the better. Now commodities are turning lower after being on a bull run in recent months. The shift owes much to the Federal Reserve's latest interest rate cut - it's spurred investors to take some money out of commodities and ever-so-cautiously put some back into equities.

As a result, gold has fallen by its largest amount since June 2006, report Pham-Duy Nguyen and Millie Munshi for Bloomberg. The price dropped to $946.20, after hitting a record $1,033.90 on March 17. Declines were also seen in silver, sugar, wheat and oil.

The price of oil, which had been posting new records every day recently, suddenly dipped lower after demand for both oil and gas weakened, reports John Wilen for the Associated Press. Prices at the pump stepped back for the third straight day (insert a sigh of relief here).