As we round out the third quarter, exchange traded fund investors can consider diversifying a portfolio to include munis, alternative energy, European equities and a market hedging strategy for the quarter ahead.

Municipal bonds have been hit after the fallout on the Detroit bankruptcy, coupled with large mutual fund redemptions, reports Trang Ho for Investor’s Business Daily. On the other hand, Andrew Hill, president and co-founder of Andrew Hill Investment Advisors, points out the tax-free muni income look attractive given the higher tax rates this year.

Moreover, the improvement in home prices would also bolster the finances of state and locl governments, which helps with credit quality.

The iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) has a 2.96% 30-day SEC yield. The fund is down 3.8% year-to-date. [Muni ETFs: Cheaper than Corporate Bonds]

Clean, alternative energy is surging this year and could continue to shine as the world tries to find a balance to growing population and pollution.

“Reducing and eliminating pollution just makes common sense even if it did not contribute to causing climate change, which it does,” Andrew Bellak, CEO of StakeHolders Capital, said in the article. “Therefore clean technology has a bright future. The same goes for alternative or renewable energy. It is cleaner, safer and geopolitically less risky. These companies will be the target for takeovers by traditional, cash-rich, fossil-fuel companies, who want to buy their way into the game and remain an energy player.”

The PowerShares Cleantech Portfolio (NYSEArca: PZD) has gained 26.7% year-to-date and PowerShares Global Clean Energy Portfolio (NYSEArca: PBD) rose 44.0% year-to-date.

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