Brett Arends of The Wall Street Journal gives us some areas to keep a close eye on in 2009, for better or for worse.

• Municipal Bonds: Some are paying as much as three times as much as Treasuries, on a taxable basis; they will either be a gold mine or a huge money pit. Take a look at the iShares S&P California Municipal Bond Fund (CMF), which has crossed both its 50- and 200-day moving averages.

• GAP (GPS) is a cheap retailer with a solid balance sheet, it is trading around six times cash flow and yielding 2.6%.  Perhaps take a look at Retail HLDRs (RTH) if you’d like exposure. GPS is 2.6%, and it has crossed its 50-day moving average. 

• Long Treasury: Many investors have rushed into treasuries for their safety, but a 30-year yields a measly 2.63%; everything but Depression-style deflation will hurt these bonds. Keep an eye on the Vanguard Extended Duration Treasury ETF (EDV), which is above its 50- and 200-day moving averages.

• Precious Metals: Governments are borrowing and printing money like crazy, which is terrible for paper money and great for precious metals. Take a look at silver, a bit cheaper than gold, more specifically, the iShares Silver Trust (SLV), which has crossed over its 50-day moving average. 

• Homebuilder stocks: If there is any recovery in the housing market, it may start with the homebuilders, which are still down 85% from their 2005 peaks, which history has shown as a good indicator to buy. Still – watch the trends. Recent history has shown that recent history doesn’t always apply. Take a look at the iShares Dow Jones U.S. Home Construction Index (ITB), closing in on its 50-day moving average.

• CGM Focus Fund (CGMFX): Fund legend Ken Heenber’s fund tanked this past year and it will be interesting to see how it performs over this new year. Mutual funds have taken a beating overall in 2008. Can they come back? Will investors want to go back? Keep an eye on this industry.

• US Geothermal Inc. (HTM): A leveraged alternative energy play that is high-risk and speculative; it has plenty of cash and is trading at about $0.70 per share. President-elect Barack Obama wants to make alternative energy a priority, which could benefit ETFs related to the sector. Market Vectors Global Alternative Energy (GEX) is a diversified play, and it has crossed its 50-day moving average.

• iShares MSCI EAFE Small Cap Index Fund (SCZ): some believe that the bargains can be found in small Japanese and European companies and it has crossed its 50-day moving average.

• Yen: Japan has been running a massive trade surplus and saving wads of cash, generally good things for a currency.  Keep an eye on the CurrencyShares Japanese Yen Trust (FXY) to see what it does this year. It’s above both its 50- and 200-day moving averages.

 These are all great companies, sectors and funds to watch; unfortunately, no one can read into the crystal ball and tell us exactly how the market will play out. But this year could be an interesting one.

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

This index enables Vanguard to offer its clients access to the most investable areas of what potentially could be a highly illiquid overseas marketplace.  It also enables the provider to remain competitive and try to grab attention and market share from small-cap international ETFs that are already established, such as the International Small Cap Dividend Fund (DLS), iShares MSCI EAFE Small-Cap Index Fund (SCZ), the SPDR S&P International Small-Cap Fund (GWX), and the FTSE Developed Ex-US Small Cap ETF (IFSM), states Murray Coleman of Index Universe.

Vanguard has a good advantage in the industry, in that, last month, it introduced its long-closed International Explorer Fund (VINEX), which had an expense ratio of 0.35%, making it the cheapest mutual fund in its category and making an actively managed fund the least expensive option for retail investors when matched against corresponding ETFs.

As for the Vanguard FTSE All-World ex-US Small-Cap Index Funds, investor shares will require at least $3,000 with an expense ratio of 0.60% and institutional shares will require $5 million and charge 0.35% in expenses.  As for the ETF version, the expense ratio will be 0.38%, making it competitive with BGI’s version, but more costly than IFSM.

This new index will provide a good alternative and open up options for traditional index mutual fund investors.

A foreign small-cap fund that isn’t an index mutual fund or exchange traded fund (ETF) has recently reopened its doors to new investors, but how does it stack up against ETF rivals?

The Vanguard International Explorer Fund (VINEX) is an actively managed mutual fund that has been closed to new investors since 2004.

With its reopening, though, there will hopefully be more lower-cost choices in small-cap international stock funds, according to Murray Coleman of Index Universe. VINEX is down 47.4% year-to-date.

The current expense ratio of VINEX is 0.35% a year, which beats all current broadly diversified ETF and index fund contenders.

The iShares MSCI EAFE Small Cap Index (SCZ), with an expense ratio of 0.40%, offers a low-cost alternative but it does not prvoide emerging markets exposure. SCZ is down 48.9% year-to-date.

Five funds compete with one another directly with broadly diversified portfolios, but there are a total of 11 different ETFs that target more specialized or niche markets.

There are some caveats to small-cap international stock funds. VINEX requires initial investments of $25,000 and charges 2% redemption fees on assets held less than two months. But whale investors of $100,000 or more face fewer restrictions on minimum asset levels.

VINEX has a turnover rate of 45% with around 200 stocks and SZC at 15% with 600+ stocks.

WisdomTree International SmallCap Dividend FUnd (DLS) was the first to market broad-based and highly diversified ETFs. It cited that dividened-based funds were different than traditional market cap-weighted ETFs in explaining its pricing structures. DLS is down 45.5% year-to-date and charges an expense ratio of 0.58%.

Index returns have varied in the group by 4%. Over the long-term, DLS, the best-performing ETF in the last five years, outperformed SCZ by 2%.

Eric Uhlfelder for Advisor Perspectives reports that this index is also market-cap weighted, measures stocks free float, or the measure of a stock’s equity that is actually tradeable. The EAFE is the world scale S&P 500.

Like its U.S. counterpart, the index provides heavier exposure to the world’s largest companies, industries, sectors and national markets. For example, despite the disastrous year commercial banks have had, they still make up nearly 14% of the index. And though the Nikkei Index has done nothing over the past 15 years, more than one-fifth of EAFE is invested in Japanese stocks. So far, the EAFE index is off 14% in U.S. dollar terms.

Despite the hardships of late, EAFE has shown some long-term value, and asset managers continue to seek this index when they want non-discretionary market exposure. Because it focuses on the largest companies, EAFE emphasizes aggregate past performance and underweights the smaller stocks that have been leading the market. Further inflows into EAFE-tracking funds exaggerate these differences.

In the short-term, it has taken a hit along with most global markets. But long-term, such as over this past decade, the EAFE still outperforms the S&P 500.

The S&P is down 17.4% year-to-date, and up 5.8% over the last five years.

Some funds that give exposure:

• iShares MSCI EAFE (EFA): down 22.7% year-to-date; up 11.5% in the last five years
• iShares MSCI EAFE Growth (EFG), down 21.8% year-to-date
• iShares MSCI EAFE Value (EFV), down 22.8% year-to-date
• iShares MSCI EAFE Small-Cap (SCZ), down 29.2% year-to-date