ETF Expert

CNBC commentators are letting their euphoria show. The S&P 500 has rallied 24% since the tail end of February. In fact, we've now seen 3 consecutive months of market gains.

Of course, financial stocks have mostly led the way higher. In March, you had the House taking a hard look at mark-to-market accounting as well as the Fed vowing to purchase $300 billion in long-term treasuries and $700 billion in mortgage debt. In April, you had "surprise" profits by all of the major banks. Meanwhile, in May, many of the major financial institutions vowed to pay back funds that they received from the government's TARP plan.

Yet how many folks believe in the depths of their wallets that financial stocks, or the ETFs that track them, represent true value? Raise your voice and let yourself be heard!

Indeed, a more probable scenario is that the major financial ships on the ocean will remain afloat; however, they may not have to ability to chart a genuinely profitable course for years.

With consumer sentiment improving, the pace of housing declines slowing, and 65% of companies beating lowered expectations, just how "happy" should you let yourself be? Your happiness as an investor may be highly correlated with the overall health and wealth of China.

Although our markets began to climb alongside the improved news in financials, the best ETFs over the last 3 months revolve around metals and materials used to build things. Here are the 5 best ETFs (excluding financials) on a rolling 3-month basis:

The implications here are twofold. One, the companies involved in the production, extraction and transportation of basic materials as well as industrial metals and lumber have collectively seen their share prices surge. Two, we can credit China's infrastructure stimulus package in addition to the Chinese consumer.

For all of the talk about rebuilding U.S. infrastructure, only 5% of our stimulus package is going to these efforts. China? Some $300 billion of the $600 billion, or 50%, has been set aside for building its infrastructure, while another $150 billion is for rebuilding the earthquake-rattled Sichuan Province. With 3/4 of the Chinese stimulus package going to building stuff, you've seen Claymore China Real Estate (TAO), Market Vectors Steel (SLX) and Claymore Global Timber (CUT) lead the way.

On corrections, on dips, or upon serious bear market retrenchment, you'd expect these areas to get whacked pretty hard. They can be exceptionally volatile. What's more, they are entirely dependent on successful reflation of the global industrial cycle.

Nevertheless, investors must recognize that China's fortunes (or misfortunes) have a larger effect on our portfolio well-being than TALF, TARP or PPIP. Those acronyms may have the power to ward off catastrophe, but increasing demand in China is the ticket to significant share price gains.