The number of ETFs available in the market may be confusing, but there are so many choices that investors can customize their portfolios according to their personal preferences and strategy. The ultimate goal is usually the same (to make money), there are two primary categories investors fall into: those who use a fundamental strategy and those who prefer a sector strategy, explains Don Dion for TheStreet. We throw in a third strategy below, too.

Fundamental Strategy: Fundamental ETF portfolios are suitable for investors looking to take advantage of the cost efficiency and tax efficiency of ETFs over an extended time period. These portfolios are usually not traded very often and provide exposure to the broad market while meeting their needs for income.

Investors who find this strategy appealing often cite taxes as the primary lure.

• iShares Dow Jones Select Dividend Index (NYSEArca:DVY): up 4.8% year-to-date

• PowerShares QQQ (NYSEArca: QQQQ): up 42.9% year-to-date

Sector Strategy: A sector ETF strategy is designed to actively capture market trends. Some prefer  a momentum-based strategy to indicate the best times to enter and exit funds. ( The strategy you choose is just as important as the approach). These portfolios are considered active, as they are traded and monitored constantly.

• iShares iBoxx $ High Yield (NYSEArca: HYG): up 23.8% year-to-date

• PowerShares DB U.S. Dollar Bullish (NYSEArca: UDN): up 8.1% year-to-date

A Blend Strategy. We use trend following by monitoring the 200-day moving average in order to find those areas that are moving. By getting in and out of the market at set signals, you give yourself the opportunity to be in the markets for any potential long-term uptrend. The stop loss enables you to put a cap on your losses. The benefit of relying on market signals to determine where and when you invest also removes the “noise” that emotions can generate and cloud your judgment. Any ETF works with this strategy, whether it’s a broad-based, plain-vanilla fund or a more exotic, niche ETF. (How to get in on the rebound).

Always do some research on what you are implementing and consider the liquidity, underlying stocks and pricing taking place in the ETFs you choose.

For more stories about trend following, visit our trend following category.

SPDRs S&P 500 (NYSEArca: SPY), currently up 15.6% year-to-date, with average daily trading volume of 189 million, corresponds to the price and yield performance of the S&P 500 Index. The fund has a net expense ratio of 0.09%.

Sector allocations: information technology, 18.6%, financials, 15.2%, health care, 13.1%, energy, 11.7%, consumer staples, 11.6%, industrials, 10.2%, consumer discretionary, 9.2%, utilities, 3.7%, materials, 3.5%, telecom services, 3.2%

PowerShares QQQ (NasdaqGM: QQQQ), currently up 38.4% year-to-date, with daily average trading volume of 133 million, seeks to track the Nasdaq-100 Index. The fund consists of all stocks in the Index, which includes 100 of the largest domestic and international nonfinancial companies. QQQQ has an expense ratio of 0.2%.

Sector allocations: consumer discretionary 13.3%, consumer staples 1.1%, health care 16.3%, industrials 4.9%, info. tech. 63.1%, materials 0.6%, telecom services 0.8%

Financial Select Sector SPDR (NYSEArca: XLF), currently up 16.1% year-to-date, with average daily trading volume of 112 mil, tries to reflect the returns and characteristics of the Financial Select Sector Index.  The fund has an expense ratio of 0.21%. Top holdings include JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC).

iShares Russell 2000 Index (NYSEArca: IWM), currently up 19.8% year-to-date, with average daily trading volume of 72 million, tries to mimic results that correspond to the price and yield performance, before fees and expenses, of small capitalization sector of the U.S. equity market, Russell 2000 Index, which represents around 2,000 smallest companies in the Russell 3000 Index. The fund has an expense ratio of 0.24%.

Sector allocations: financial services, 20.5%, consumer discretionary, 16.8%, technology, 15.8%, health care, 15%, materials & processing, 8.2%, producer durables, 8.1%, utilities, 5%, other energy, 3.9%, autos & transportation, 3.5%, consumer staples, 2.6%

UltraShort QQQ ProShares (NYSEArca: QID), currently down 9.2% in the last month, with daily average trading volume of 36 million, seeks daily investment results that tracks twice the inverse of the daily performance of the NASDAQ-100 Index. Note the ETF tries to reflect a -200% return of the Index for a single day. The fund has an expense ratio of 0.95%.

Max Chen contributed to this article.

Short-term incentives and measures to stoke the economy are not fixing the real problem of sustained growth as businesses reduce payrolls, bank lending contracts, and consumers save more and spend less, comments Steven Pearlstein for The Washington Post.

The Federal Reserve took bold and necessary steps to prevent the collapse of the financial system. But the Fed also created so much liquidity that some fear that another financial bubble is forming.

As the money flew off the printers, the Fed was cutting interest rates in inter-bank lending to basically zero. However, banks kept interest rates unchanged for everyone else, and the result is that “spreads” between bank-to-bank lending and lending to everyone else are close to record highs.

The entities that are actually borrowing are hedge funds and other investors who use the money to purchase stocks, corporate bonds and commodities, pushing prices higher. Some ETFs to watch for activity include:

• DIAMONDS Trust, Series 1 (NYSEArca: DIA): up 14.0% year-to-date
• PowerShares QQQ (NasdaqGM: QQQQ): up 43.3% year-to-date
• SPDRs S&P 500 (NYSEArca: SPY): up 19.1% year-to-date
• iShares iBoxx $ Invest Grade Corp Bond (NYSEArca: LQD): up 8.9% year-to-date
• iShares S&P GSCI Commodity Indexed Trust (NYSEArca: GSG): up 4.9% year-to-date

The excess liquidity is also being used to finance new “carry trade,” borrowing at low U.S. rates to buy bonds in places with higher rates.

• POWERSHARES DB G10 (NYSEArca: DBV): up 17.7% year-to-date

The Central Bank is determined to stay its course, using anything that will strengthen the balance sheets. Fed officials won’t be increasing interest rates and reducing liquidity until they decide the economic recovery has a proper foothold.

For full disclosure, Tom Lydon’s clients own shares of LQD and QQQQ.

Max Chen contributed to this article.

It’s important to keep a few tidbits in mind when picking out a stock, according to InvestingFirstSteps.

Beat the market? A lot of investors are too focused on “hot tips” or phenomenal returns in certain stocks. It should be noted that even professional traders who are paid to track the stock markets rarely provide returns of 11% or more, on average. We follow a 200-day moving average to help guide us. You can read more about this strategy in The ETF Trend Following Playbook.

ETFs. ETFs are popular and easy to use. They’re transparent, meaning you know what’s in them at all times. They trade all day on an exchange, just like a stock. And, on average, they’re cheaper than mutual funds. ETFs seek to reflect returns on the underlying index such as the S&P 500, Dow Jones Industrials Average and NASDAQ Composite. The ETFs listed below are based on a major indexes in the United States – from this point, you can access commodities, currencies, specific sectors and much, much more.

• SPDRs S&P 500 (NYSEArca: SPY)
  

• Diamonds Trust (NYSEArca: DIA)
  

• PowerShares QQQ (NasdaqGM: QQQQ)
  

For more information on investing, visit our ETF 101 category.

Max Chen contributed to this article.

ETF trading volume jumped from $142 billion in 2004 to $3 trillion in 2008, and settling around $1.4 trillion in June 2009, write Yan Zilbering and Donald Bennyhoff for IndexUniverse. Since 2008, nost of the ETF trading volume has been centered around a narrow selection of ETFs from the 850 or so available as of June 2009.

The top 20 most heavily traded ETFs by dollar volume amount to around 80% of total ETF trades. At the forefront are the most established ETFs with the most assets that are popular among investors of all types. The included ETFs account for about 50% of all ETF trading volume and they track the most common, broad-based domestic indexes:

• SPDRs S&P 500 (SPY): avg. daily turnover since Jan. 2008 is 43%
• PowerShares QQQ (QQQQ): avg. daily turnover since Jan. 2008 is 43%
• iShares Russell 2000 Index (IWM): avg. daily turnover since Jan. 2008 is 54%
• DIAMONDS Trust, Series 1 (DIA): avg. daily turnover since Jan. 2008 is 28%

There are also a group of nine narrowly focused sector and sub-sector ETFs, which represent around 16% of ETF trades, used to implement various strategies through the easy access of specific areas of the market.

• Financial Select Sector SPDR (XLF): avg. daily turnover since Jan. 2008 is 45%
• Energy Select Sector SPDR (XLE): avg. daily turnover since Jan. 2008 is 40%
• Oil Services HOLDRs (OIH): avg. daily turnover since Jan. 2008 is 54%
• SPDR Gold Shares (GLD): avg. daily turnover since Jan. 2008 is 6%
• iShares Dow Jones US Real Estate (IYR): avg. daily turnover since Jan. 2008 is 58%
• iShares MSCI EAFE Index (EFA): avg. daily turnover since Jan. 2008 is 4%
• iShares MSCI Emerging Markets Index (EEM): avg. daily turnover since Jan. 2008 is 12%
• iShares FTSE/Xinhua China 25 Index (FXI): avg. daily turnover since Jan. 2008 is 20%
• iShares MSCI Brazil Index (EWZ): avg. daily turnover since Jan. 2008 is 18%

The last set includes seven leveraged ETFs, which produce the multiple or inverse returns of the broad market or sector. This group is usually used for capitalizing on the short-term movements in the markets.

• Ultra S&P500 ProShares (SSO): avg. daily turnover since Jan. 2008 is 61%
• UltraShort S&P500 ProShares (SDS): avg. daily turnover since Jan. 2008 is 109%
• Ultra QQQ ProShares (QLD): avg. daily turnover since Jan. 2008 is 90%
• UltraShort QQQ ProShares (QID): avg. daily turnover since Jan. 2008 is 178%
• UltraShort Financials ProShares (SKF): avg. daily turnover since Jan. 2008 is 242%
• Direxion Daily Financial Bull 3X Shares (FAS): avg. daily turnover since Jan. 2008 is 128%
• Direxion Daily Financial Bear 3X Shares (FAZ): avg. daily turnover since Jan. 2008 is 241%

By looking at the data, it is noticeable that the more heavily traded ETFs traded at a higher turnover rate. ETFs tracking volatile sectors have been traded at even higher levels.

Max Chen contributed to this article.

Ron Rowland for JutiaGroup lists these six ETFs that you must get to know. Rowland’s caveat is that he isn’t saying buy them right now. But know them. They’re among the largest and most liquid ones on the market today:

• SPDR S&P 500 (SPY): up 12.6% year-to-date; gives instant access to the S&P 500, an index of the 500 largest domestic stocks covering all industry sectors. This ETF was the first ETF, introduced in 1993, and is referred to as the “grandfather” of funds.

• PowerShares QQQ (QQQQ): up 34.8% year-to-date; viewed as a large-cap technology benchamark, this ETF tracks the Nasdaq 100 is a sub-set of the Composite, consisting of the 100 largest non-financial stocks in the index. Exposure to real estate, banks and insurance companies is not available in this fund.

• Diamonds Trust Series 1 (DIA): up 7.6% year-to-date; a 30-stock index that tracks Dow Jones Industrial Average, an index of the largest U.S. blue chip stocks. DIA excludes some key sectors like transportation and utilities. Despite criticisms of the Dow (it’s too narrow, it excludes certain key sectors), it does give access to mega-caps.

• iShares Russell 2000 Index (IWM): up 17% year-to-date; the Russell 2000 is an index of the 2,000 smallest companies ranked by U.S. market value. Small-caps often lead the way in a recovery, too. IWM can be a good way to hold hundreds of these small companies in one fund.

• iShares MSCI EAFE Index (EFA): up 15.2% year-to-date; An international fund based upon the Europe, Australasia and Far East Index published by Morgan Stanley Capital International. It includes Western Europe, Australia, Japan — the countries with modern stock markets and banking systems. The countries in the index can change as new ones are promoted to developed status.

• iShares MSCI Emerging Markets Index (EEM): up 45.7% year-to-date; markets like Brazil, Russia, India and China are represnted in this fund, along with markets that have recently made ties with the rest of the world. It can be challenging to buy stocks in emerging markets. This ETF, like so many others, simplifies the whole process.

If these or any other ETFs are appealing to you and right for your portfolio, watch the trend lines to spot any opportunities to get in. Be sure to have a sell point before you buy, too.

For more stories about ETFs, visit our ETF 101 category.

For full disclosure, Tom Lydon’s clients own shares of EEM, QQQQ and SPY.

The inflows came despite an investigation and hearings by the Commodity Futures Trading Commission (CFTC), as well as the fact that new shares couldn’t be created. UNG applied for 1 billion new shares to satisfy growing investor demand. The request has yet to be approved. The CFTC has also not yet given its final opinion about the role of speculators in the price run-ups.

Meanwhile, some investors appear bullish on the commodity. Todd Sullivan for Seeking Alpha explains that Energy Information Administration’s latest report showed a 0.8% decline in natural gas production in May. If that holds, could a price spike be in the offing? Only time will tell. Watch the trend lines for signs.

• United States Natural Gas (UNG): down 43.5% year-to-date

For more stories about natural gas, visit our natural gas category.

For full disclosure, some of Tom Lydon’s accounts hold UNG.

NASDAQ has been one of the leaders in the recovery. It was the first major index, for example, to cross  its long-term trend line. Earnings from Apple (APPL) and Intel (INTC) propelled the index even higher, leading to the index’s longest winning streak in 13 years. That streak came to an end today.

Amy Scott for Marketplace reports that the technology sector has had a strong second quarter, even though concerns about the broader economy still persist.

Technology systems are forced to constantly update their programs for efficiency, which causes businesses to follow. So even if companies cut employees, they will still place a premium on efficiency and up-to-date programs and software.

Will this last? Microsoft (MSFT) may have clouded the sunny view. The company posted a 29% drop in quarterly profit and weak sales across all of its units. This is the first full year of losses ever posted by the software giant, explains Nick Wingfield for The Wall Street Journal.

• First Trust NASDAQ-100 Tech Index (QTEC): up 50.2% year-to-date

• PowerShares QQQ (QQQQ): up 32.7% year-to-date

For more stories about technology, visit our technology category.

Federal Reserve Governor Kevin Warsh reads recent inflation trends as positive, as there has been some price stability and deflationary risks seem tamed. Meanwhile, the Fed is keeping overnight interest rates in the 0% to 0.25% range that was hit in December and said they were likely to stay that way for some time.

Chris Isidiore for CNN money reports that the inflationary factors are evident, such as a rise in oil prices, loss of value on the dollar, and the rise on Treasury yields all signal signs of higher consumer prices. Deflation is supported by rising unemployment and low factory utilization, which may be signs that prices will fall further. This cycle would be more destructive to the economy at this point.

Despite soothing words about inflation and deflation from the Fed, there are ways to be on your guard for either scenario.

Inflation. The large volumes of money smothering the banks has economists and financial advisers worried over inflation. The main sign of inflation can be seen through the Consumer Price Index (CPI).

How To Play It. Rising inflation would deteriorate asset value over the long-term for bondholders, and a way to combat this is through Treasury Inflation-Protected Securites (TIPS). Another way to hedge against inflation is through commodities, gold being a classic inflation hedge.

• SPDR Barclays Capital TIPS (IPE)
• iShares COMEX Gold Trust (IAU)
• SPDR Gold Shares (GLD)

Deflation. A deleterious cycle can be created as banks stop lending, businesses halt expansions, wages fall, people reduce spending and prices would be driven further downward. The CPI is a good indicator for deflation.

How to Play It. Investors should look to short-term investment strategies, such as short-term certificates of deposit or money-market funds. But those with a 10-year time table could look into the technology sector since companies that seek to boost productivity will do so through technology.

• PowerShares QQQ (QQQQ)
• PowerShares Dynamic Semiconductors (PSI)

Analysts and experts are still debating whether the U.S. economy will experience inflation, deflation, or stagflation, remarks Lauren Young for Yahoo Finance.

Inflation fears stem from recent government stimulus plans that could cause prices to sky rocket. Deflation can develop as prices decline coupled with falling demand which would further fuel price cutting. Stagflation may occur as a result slow growth and increasing inflation.

Inflation. The large volumes of money smothering the banks has economists and financial advisers worried over inflation. The main sign of inflation can be seen through the Consumer Price Index (CPI).

How To Play It. Rising inflation would deteriorate asset value over the long-term for bondholders, and a way to combat this is through Treasury Inflation-Protected Securites (TIPS). Another way to hedge against inflation is through commodities, gold being a classic inflation hedge.

• SPDR Barclays Capital TIPS (IPE): up 4.3% year-to-date
• iShares COMEX Gold Trust (IAU): up 4.3% year-to-date

Deflation. A deleterious cycle can be created as banks stop lending, businesses halt expansions, wages fall, people reduce spending and prices would be driven further downward. The CPI is a good indicator for deflation.

How to Play It. Investors should look to short-term investment strategies, such as short-term certificates of deposit or money-market funds. But those with a 10-year time table could look into the technology sector since companies that seek to boost productivity will do so through technology.

• PowerShares QQQ (QQQQ): up 15.3% year-to-date
• PowerShares Dynamic Semiconductors (PSI): up 8.3% year-to-date

Stagflation. Stagflation is market by high inflation and slow economic growth. Lenders, households and businesses would be pessimistic about the markets, meaning that growth would come to a crawl. Shortage of production capacity will cause a rise in inflation. The misery index, a combination of unemployment and inflation rates, gauges the rate of stagflation.

How to Play It. Protecting your portfolio from stagflation is a real challenge. If stagflation is coming, investors may look into high-quality growth stocks (or in the case of ETFs, such funds that hold high-quality growth). Gold and/or TIPs can help ease some of the risk on the inflation side, as well.

• RevenueShares Navallier Overall A-100 (RWV): up 5.3% since inception (note that this fund is a blend)
• SPDR Dow Jones Large Cap Growth (ELG): up 6.8% year-to-date

For full disclosure, some of Tom Lydon’s clients own shares of QQQQ.

Max Chen contributed to this article.