There are three places you can look to find those diamonds in the rough.

The first place to start looking is at those investment that didn’t fully participate in last year’s rally, remarks Carla Fried for CNNMoney. Or, look for stocks that have increased with the broad market but whose fundamentals have improved beyond the average. Lastly, an investor may shift portfolio strategies into a defensive, income-generating one. [New Year, New ETF Strategy.]

Undervalued laggards. The health care sector was one left behind in the rally over fears about the impact of health-care reform. While the loss of the Democratic majority in the Senate has abated those fears, legislation may be getting closer to reality. Drug companies are trading at a slight premium to the S&P – investors are paying less per dollar of health-care earnings than for other corporate profits. [Health Care ETFs for an Uncertain Outcome.]

• Health Care Select Sector SPDR (NYSEArca: XLV)
  

Cheap performers. Information technology companies were winners in the rebound, but tech has seen its price/earnings ratio fall since the financial crisis. Forrester Research projects that global spending on IT products and services will increase 8.1% this year to $1.6 trillion. Additionally, tech companies are also sitting on large wads of cash for future investments. [Tech ETFs: A Way to Avoid the Guesswork.]

• Vanguard Information Technology (NYSEArca: VGT)

Dividends. Dividend-paying stocks are hovering at an average P/E of just 15. Some stocks are yielding 2%, but large telecommunications companies are yielding more than 5%. You can still find yield on bond ETFs, but careful: bond prices will decline as interest rates increase, putting your principal at risk. [More on Dividend ETFs.]

• iShares S&P Global Telecommunications (NYSEArca: IXP)

Before jumping into anything, though, be sure to have an investment strategy in place. We use the 200-day moving average strategy to determine when we’re in and when we’re out. When a position is above its 200-day, it’s a buy signal. When it drops below or 8% off the recent high, it’s a sell signal. [How to Follow the Trends.]

For more information on trend following, visit our trend following category.

Max Chen contributed to this article.

Evidence of a distressed economy lingers, underscored by a weak jobs report. The Labor Department said weekly jobless claims fell by less than expected last week. The Commerce Department reported durable goods orders didn’t rise as fast as anticipated last month, as orders for big-ticket manufactured goods are low, reports Stephen Bernard for Associated Press.

The Dow Jones industrial average fell more than 150 points following disappointing reports.

During his State of the Union address Wednesday night, President Barack Obama avoided talking about the banking overhaul plan. Last night’s speech was described as an effort to “reset” or “restart” the agenda after a year the President admitted hasn’t always gone smoothly.

The biggest shift Obama made last night, policy wise, was his declaration “that jobs must be our number one focus in 2010,” and plans for a “new jobs bill” would go into production, reports Aaron Task for Tech Ticker. Obama also urged Congress not to give up on health care reform.

Earnings reports were mixed:

• Proctor & Gamble (NYSE: PG) saw broad sales growth in their most recent quarters, signaling at least some pickup in consumer spending. For P&G, in particular, the improved sales were seen as increased evidence of a turnaround in its business since sales of its higher priced goods tumbled, reports CNN Money. Vanguard Health Care (NYSEArca: VHT) is down nearly 1% this morning; JNJ is 11.3%.

  

• Ford Motor Corp. (NYSE: F) posted a profit of $2.7 billion for the year, a dramatic turnaround for the company. They sustained and weathered one of the most dire years for the auto industry and remain in strong health. The company grabbed 15.3% of the U.S. auto market as sales of Ford brands in the fourth quarter rose 13% from the same period a year earlier, reports Jerry Hirsche for The Los Angeles Times.
• AT&T (NYSE: T) earnings were also largely aided by sharp cost-cutting. The company posted a 25.6 % increase in fourth-quarter earnings as its wireless and new T.V. businesses continue to grow. In the quarter that ended December 31, AT&T said Thursday, it earned $3.09 billion, or 51 cents a share, reports Marguerite Reardon for CNET News. All eyes will be on the wireless company to watch how it handles the latest iPad Tablet launch this week. iShares Dow Jones U.S. Telecom (NYSEArca: IYZ): AT&T is 17.3%

This year looks like a good year for more merger & acquisition transactions and corporations inch their way back to fiscal health. Investors may also try and weed out weaker companies in their portfolios and switch to companies with better fundamentals. However, if the economy doesn’t improve as quickly as people would expect, stock prices may take a dip. Have your strategy at the ready if that happens. The reduction in monetary and fiscal programs around the world will also dampen the stock market’s forward momentum. [How to follow trends.]

Between Jan. 15 and Jan. 22, all sectors within the broader S&P 500 index showed negative returns, writes Frank Holmes for U.S. Global Investors. U.S. Global Investors is one of the best-known gold managers in the world (for full disclosure, I’m a board member).

Performers.

• The retail food group showed the strongest gains,  jumping 5.4% for the week.
• Airliners were the second-best performers, up 3.6%. Airliners are seeing lower capacity, route optimization and increased passengers. [The key to airline's success.]
• Regional banks also outperformed, increasing 1.1%. The administration put new regulatory action on large banks, which has turned some investors toward regional banks. [Why regional banks could come out ahead.]

Laggards.

• Aluminum, diversified metals & mining and steel groups dropped 14.3%, 11.9% and 9.9%, respectively. This may mostly be a response to China’s slowing down its economic growth.
• Health care facilities group lost 15.5%. The health care bill has lost momentum after a Republican won a Senate seat – hospitals would have more business if more people had health insurance. [Health care's prospects.]
• Diversified financial services group fell 8.7%. Large banks were sold off after President Barack Obama’s proposed new regulations.

As the economy changes and grows in the coming year, there are plenty of domestic-focused ETFs to watch:

• S&P 500 SPDRs (NYSEArca: SPY)
• Health Care Select Sector (NYSEArca: XLV)
• SPDR S&P International Telecommunications Sector (NYSEArca: IST)
• Consumer Staples Select Sector SPDR (NYSEArca: XLP)
• Consumer Discretionary Select Sector SPDR (NYSEArca: XLY)
• Select Sector SPDR Utilities (NYSEArca: XLU)
• Industrial Select Sector SPDR (NYSEArca: XLI)
• Technology Select Sector SPDR (NYSEArca: XLK)
• Energy Select Sector SPDR (NYSEArca: XLE)
• Financial Select Sector SPDR (NYSEArca: XLF)
• SPDR Select Sector Fund- Basic Industries (NYSEArca: XLB)

For more information on the S&P 500, visit our S&P 500 category.

For full disclosure, Tom Lydon is a board member of U.S. Global Investors.

Max Chen contributed to this article.

• Consumer discretionary
• Consumer staples
• Energy
• Financials
• Health care
• Industrials
• Information technology
• Materials
• Telecommunications
• Utilities

The funds will be made up of subsets of the S&P SmallCap 600 Index. The index includes companies with a market capitalization range of between $250 million and $1.2 billion. [Why small-cap companies have appeal now.]

There are no other small sector ETF suites like this out there, which makes them innovative, and investors could find them especially appealing in this post-recession era. Small-cap stocks have outperformed large-caps over the past 10 years, and they’re also better positioned to take advantage of improving economies. [Micro-caps are another option for ETF investors.]

For more stories about asset class ETFs, visit our asset class ETF category.

Defensive sectors have led the market over the last few weeks, remarks Gary Gordon for TheStreet, although, it might be because of year-end yield harvesting or efforts to combine cash-flow ETFs with growth ETFs. Among some of the top ETFs leading us out of 2009 include:

• Utilities Select Sector SPDR (NYSEArca: XLU)

• iShares Dow Jones U.S. Telecom (NYSEArca: IYZ)

Additionally, semiconductors and agribusiness are still performing remarkably well.

• SPDR S&P Semiconductor (NYSEArca: XSD)

• Market Vectors Agribusiness ETF (NYSEArca: MOO)

According to Gordon, the U.S. dollar carry trade, or “risk trade,” has a little more juice left to be squeezed out of it for these reasons:

• Government policy. “Risk trade” is the world’s belief that the U.S. interest rates will remain at practically nothing while the dollar remains weak. The U.S. government currently hasn’t shown any initiative in strengthening the dollar, and policies like health care reform, fiscal stimulus and the Fed’s reluctance to change rates have all kept the dollar from appreciating.
• Advisor strategy. Gordon has increased his exposure to utilities and others are doing the same. One ETF-only advisor specifically noted positions in technology, telecoms and utilities because of the prospect of growth with stable cash flows. [An ETF to invest in the "smart-grid" plan.]
• The U.S. dollar. The PowerShares DB U.S. Dollar Index Bullish (NYSEArca: UUP) may have gained recently; however, investors should know that since March, UUP mostly finished every month lower than the month before it. A true trend reversal may need something more substantial. [Gains in the dollar.]

These are some ETFs that help an investor interested in capitalizing on the carry-trade. [Playing the carry-trade with ETFs.]

• PowerShares DB G 10 Currency Harvest (NYSEArca: DBV)

• iPath Optimized Currency Carry ETN (NYSEArca: ICI)

Max Chen contributed to this article.

Assets: $508million

Holdings: Some of the best-known names in the telecommunications sector can be found in this fund, including AT&T (NYSE: T), Qwest (NYSE: Q), Sprint (NYSE: S) and Verizon (NYSE: VZ).

Objective: IYZ tracks the Dow Jones U.S. Select Telecommunications Index, which is a subset of the Dow Jones Wilshire 2500 Index.

What You Should Know

• IYZ is up 22.7% year-to-date, and up 11% in the last month
• The fund has an expense ratio of 0.48% and 33 holdings
• Yields 4.3%
• The fund is primarily broken down into fixed line telecommunications, 76.6% mobile telecommunications, 23%

The Latest News

• Competition in the sector is tight – the major providers are always scrambling to offer new services at better and better prices
• More consumers are snapping up new smartphones tied to the 3G network, and using data providers held in telecom ETFs (Four ways to play the smartphone battle)
• While consumers are shutting down their land lines, other areas of telecom continue to grow, according to BusinessWeek: wireless, data and video are all hot
• Revenue in the sector is growing faster than the costs are (Reasons to watch global telecom)
• Telecom has a reputation for dividends, and some of them have the highest yields available in the S&P 500 (The next big telecom growth spot)

For past ETF Spotlights, visit our ETF Spotlight page.

International dividend ETFs can provide decent yields and remove the need to do research on foreign stocks. Instead of trying to pick foreign holdings on limited information, there are funds that have pulled together some high-quality, dividend-paying companies that you can hold in a basket, thus spreading out the risk. (See why dividends have outperformed growth this year.)

Todd Shcriber for Investopedia reports that ETFs that hold high-quality stocks with reliable dividend histories that focused on sectors that are typically viewed as safe dividend bets. (Why dividend ETFs are good for tough times).

For more stories about dividends, visit our dividend category.

Among the many available are:

• WisdomTree International Utilities (NYSEArca: DBU): yield 9.89%; Utility funds can be a good bet no matter where you are, because there is always a need for the services utilities provide. These companies tend to pay out steady dividends that are predictable.



• WisdomTree International Large Cap Dividend (NYSEArca: DOL): yield 8.04%; This ETF does not focus on one sector, rather it tends toward large, high-quality dividend stocks. It is a thinly traded fund, but has nice performance. Countries ranging from China to Brazil are featured in this ETF, both hot spots.



• iShares S&P Global Telecommunications (NYSEArca: IXP): yield 5%; Telecom stocks are another sure play as they are indispensible and growing. This is not as international a play as the other two funds, as AT&T and Verizon are in the top 10 holdings. Nevertheless, the ETF contains quality names across the world.

Apple’s (NasdaqGS: AAPL) iPhone may be threatened by Motorola’s (NYSE: MOT) Droid, a smartphone serviced on Verizon’s (NYSE: VZ) network and powered by Google’s (NasdaqGS: GOOG) Android 2.0 operating system, according to The Week. (The smartphone push in China).

John Herman of Gizmodo believes that the iPhone is already so entrenched in the consumer world that it will still have a dominating presence. David Coursey of PC World argues that the Droid’s practical features are a good lure for consumers looking for something not already on the market.

MG Seigler at TechCrunch sees that Google isn’t trying to undermine iPhones, but rather sell its operating system, which works on a range of different devices. (Four reasons to watch global telecom).

Many are arguing that the Droid is the most sophisticated mobile device from a hardware standpoint to hit the market, reports Michael Arrington for The Washington Post. The Droid smartphone may be as thin or thinner than the iPhone 3GS, with a slide out physical keyboard and removable battery.

For more information on the technology sector, visit our technology category.

• Vanguard Telecom Services (NYSEArca: VOX): up 13.2% year-to-date; Verizon is 20.3%

• iShares Dow Jones U.S. Technology (NYSEArca: IYW): up 46.4% year-to-date; Apple is 9%, Google is 6.5%

• iShares S&P Global Telecommunications (NYSEArca: IXP): up 5.7% year-to-date; AT&T is 15.3%; Verizon is 8.2%

• Technology Select Sector SPDR (NYSEArca: XLK): up 35.5% year-to-date; Apple is 7.7%; AT&T is 8.9%; Google is 4.8%; Verizon is 4.5%

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

Max Chen contributed to this article.

The economy grew 3.5% in the third quarter, its best performance in two years. Spending on homes and new cars, as part of the “cash for clunkers” program, contributed to the growth, reports Jeannine Aversa for the Associated Press. What it means going forward is in doubt, because if unemployment continues to rise it will hamper consumer spending. (A holiday shopping ETF?)

This week, the job markets got a reprieve: claims fell more than forecast to their lowest point in seven months, reports Courtney Schlisserman for Bloomberg. It was also the biggest drop since July. Companies appear to be cutting fewer jobs as signs of an economic recovery emerge.

Treasury Secretary Timothy Geithner spoke today about financial reform and said that new legislation will not lead to bailouts. The Obama administration wants laws that would give federal regulators to power to identify and monitor major banks so they can be wound down before collapsing, reports Anne Flaherty for the Associated Press. The law is intended to prevent putting the government in a position where it needs to decide between a big rescue or allowing the bank to fail. (How to harness the financial sector recovery).

A slew of earnings came forth this morning:

• Procter & Gamble (NYSE: PG) reported their first-quarter earnings, which were better than expected.  Profits were off 1%, but Procter & Gamble has pledged to be aggressive in winning back market share.
• Exxon Mobil (NYSE: XOM) said its profits dropped 68% in the third quarter. While the results were the best of the year so far, but Exxon has not reported such low quarterly profits in four years. Energy Select Sector SPDR (NYSEArca: XLE) is up 1.5% this morning; XOM is 21.4%.



• Motorola (NYSE: MOT) had an unexpected third-quarter profit, thanks to narrowing losses in its cell phone division. It was their second consecutive quarterly profit this year. (Four reasons to watch global telecom).
• Kellogg (NYSE: K) benefited from brand loyalty, which delivered a 6% boost to its profits last quarter. More consumers are eating at home, and they view Kellogg’s cereals as a staple. PowerShares Dynamic Food & Beverage (NYSEArca: PBJ) is up about 1% this morning; Kellogg is 5.2%.

The Economist states that cell phones have a different role in developing countries than they do in industrialized nations. Cell phones are giving many of the world’s poor their first exposure to telecommunications. In the developed world, cell phones generally are just extensions to existing land lines.

What has the expansion of cell phones in emerging markets meant for the industry and these countries?

• A recent study showed that adding 10 cell phones per 100 people in a typical developing country will boost GDP growth by 0.8% per person.
• The spread of mobile phones in developing countries has been accompanied by the rise of home-grown mobile operators in China, India, Africa and the Middle East. These providers rival the providers in the West. (What’s next for global telecom?)
• The emergence of China’s two leading telecom equipment-makers, Huawei and ZTE, have entered the global stage in the past five years and now have a growing reputation for quality and innovation, prompting a shakeout among the incumbent Western equipment-makers (How to play China’s telecom boost ).
• The development of new phone-based services, beyond voice calls and basic text messages, are now becoming feasible.. The services tend to center around agricultural advice, health care and money transfer – things that could deliver enormous benefits to residents of poor nations.

For more stories on the telecommunications industry, visit our telecommunications category.

• iShares S&P Global Telecommunications (NYSEArca: IXP): up 6.9% year-to-date

• SPDR S&P International Telecom (NYSE: IST) is up 11% year-to-date

Kevin Grewal contributed to this article.