ETF Expert

There’s no question that defensive sectors have led the way on a momentum basis. SPDR Select Utilities (XLU) and iShares Telecom (IYZ) amassed 8.4% and 10.5% respectively over the last 4 weeks.

Yet this may have something to do with year-end yield harvesting and/or efforts to combine cash flow ETFs with growth ETFs. After all, even if the financials and energy segments have slowed, tech and agribusiness are still lighting up the scoreboard. Over the same time frame, SPDR Semiconductors (XSD) and Market Vectors Agribusiness (MOO) garnered 7.6% and 8.1% respectively.

While some folks are concerned that the “dollar carry trade” (a.k.a. ”risk trade”) is finished, I think that “call” may be a bit premature. And here’s why:

1. U.S. Government Policy. A determined executive branch to see money spent on health care reform? An equally determined Congress to spend trillions on uncertain stimulus… undeniably filled with questionable pet projects? A Federal Reserve that will undoubtedly be late to embrace a change in policy direction?

Remember, the “risk trade” is based on a world view that U.S. interest rates will remain negligible while the U.S. dollar remains stable or weak. The powers in the U.S. government have no desire to see the dollar strengthen significantly any time soon.

2. Investment Adviser Strategy. Although I may maintain energy and materials dependent positions like iShares Australia (EWA) and Vanguard Emerging Markets (VWO), I have reduced some exposure to SPDR Select Materials (XLB). That’s given me an opportunity to add to income-producing sectors like SPDR Utilities (XLU) in certain accounts.

And I am not the only who has been doing it. Matt Hougan at Index Universe recently interviewed an ETF-only adviser who specifically cited positions in tech, telecom and utilities. The reasoning? It is a means to combine growth with stable cash flows.

3. Dollar Perspective. The dollar proxy, PowerShares US Dollar Bullish (UUP), may have spiked on Dubai debt concerns. It may have spiked on the better-than-anticipated unemployment figures. And UUP certainly received a great deal of interested buyers with the surge in volume that occurred on 12/4 and 12/11.

Nevertheless, here’s a little bit of perspective for readers. Beginning in March of 2009, PowerShares US Dollar Bullish (UUP) finished every single month lower than the month before it, except for June. That’s 8 out of 9 months. Even if December finished higher for the U.S. dollar, a true trend reversal may require more than the first tick higher since July.

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”, via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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