ETF Expert

The S&P 500 has turned positive for 2009, gaining a stunning 35%+ off of the March lows. Emerging markets have soared even more, surging as much as 45%. In fact, for nearly 9 weeks now, equities haven't seen more than a 2-day setback.

And it's not just in the stock market. High-yield junk bonds in the SPDR High Yield Fund (JNK) have surged 28%+. They too have turned positive on the year.

Clearly, investors have returned to risk. But for how long? Just yesterday, I expressed a firm conviction that a pullback is inevitable. And yet I also believe that the window of opportunity to successfully trade short funds is too narrow.

We're likely to see a correction that fits the 10% range. That's going to prepare the stage for the first "higher lows" since the bear began in October of 2007.

So if it's a little too late to climb aboard the risk train today, and if trading short ETFs is likely to bear too little fruit (if any), what should an ETF investor do. Answer? Prepare your "Buy List."

If you've got the stomach for some risk, your best investments may be foreign ones. And here's why:

1. Foreign stocks are cheaper than U.S. stocks. For instance, consider the price-to-book ratios for small-caps. U.S. small caps have P/Bs of roughly 1.25. In truth, that's well-below the historical average for small-cap U.S companies. Yet, P/B ratios for developed foreign small caps in the SPDR S&P International Small Cap Fund (GWX) and the SPDR S&P Emerging Market Small Cap Fund (EWX) are 0.94 and 1.02 respectively. They're trading at book value!

2. Foreign stocks are paying higher dividends. If you're going to jump in after a market correction, you might not mind getting a little more yield for the buck. Consider a hallmark total U.S. index like the Vanguard Total Market Index Fund (VTI). Its 3.0% annual yield is not too shabby. Yet the Vanguard Emerging Market Fund (VWO) has a more generous 5.0%.

Keep in mind, virtually all measures of value (e.g., price-to-earnings, price-to-book, etc.) are favoring non-U.S. countries. Add to the picture the superior growth prospects for China, Brazil and the Asia-Pacific region, and you have even more reasons to go global. Last but not least, any concerns one might have about the U.S. dollar depreciating can be ameliorated by stacking your stock deck with foreign ETFs.

One more thought. The unprecedented, globally coordinated measures to reflate world economies and stabilize them is likely to push commodity prices higher. Worldwide demographics and resource depletion will favor some allocation to various commodities or a total commodity index.

However, "water" is not traded as a commodity on the exchanges, only water companies. The PowerShares Global Water Fund (PIO) has a 70% weighting abroad, giving the foreign stock investor some additional exposure to world leaders in the treatment and technology of water services. PIO's stunning climb off the March lows demonstrates just how much potential the sector has when investors believe in worldwide infrastructure growth.

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.