In contrast, U.S. natural gas producers are still hoping to get the “thumbs up”on natural gas exporting. Perhaps producers like Conoco Phillips (COP) will make it through the government red tape, but U.S. regulators aren’t quite as keen as Canadian officials about the importance of exporting commodities.

There are dramatic difference between the energy policies for each of the border nations. Whereas Harper has a majority in Parliament for his Conservative Party to reduce the burdensome effects of regulatory snafus, Obama must satisfy environmental advocates on the “Left.” Ergo, the Adminstration deep-sixed the Keystone project (for now).

Canada’s prime minister clearly recognizes the problems associated with exporting virtually all of its oil to the U.S. In fact, speaking in Davos, Harper expressed the importance of increasing its capacity to sell its natural resources to Asia. Along those lines, Enbridge Inc. has proposed a route from Alberta to the Pacific coast of Canada, where oil would be tanker-bound for Asia.

What might this all mean for ETF enthusiasts? If you believe that European leaders will eventually manage the sovereign debt crisis and that China’s leaders will effectively engineer a soft economic landing, Canadian ETFs would be a tremendous opportunity. For that matter, even a bit of Middle East discontent tends to benefit the world’s 2nd largest non-OPEC oil producer.

If you want to go a slightly safer route, consider the iShares MSCI Canada Fund (EWC). It would need to pop roughly 20% in price, just to reclaim its 52-week highs of April 2011 (circa the “Arab Spring”). In other words, it has room to run. What’s more, the 104 large-sized companies tracked by EWC are reasonably well-established. (Energy sector exposure is roughly 28%.)

If you are willing to foray deeper into the energy pits, you can get 100% energy exposure via Guggenheim Canadian Energy Income (ENY). This ETF tracks 30+ companies in the oil and gas sector, and may include oil sands producers or higher-yielding “oil royalty trusts.” The current 30-Day SEC yield approximates 3.1%.

Finally, a bold explorer might take a shot at IQ Canada Small Cap (CNDA). Its limitted liquidity remains a challenge for those who intend to trade more frequently. That said, you’re getting roughly 75% exposure to smaller-sized materials and energy corporations with CNDA. Fundamentally, the P/B of 7 and P/E of 14 are attractive. Technically, if the current price of CNDA can put its November highs in the rear-view mirror, a vibrant breakout to the upside may await.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

For instance, in 1999, nearly every investment in the Janus stable held 4 or 5 stars. The primary reason? Janus products demonstrated superior performance on a relative basis in most stock categories over popular time frames (e.g., 1 year, 3 year, etc.).

Did Morningstar adjust for sector risk? Did they analyze individual holdings of funds? Did they re-rate funds when a manager departed? Not really. In fact, when tech-heavy Janus vehicles crashed with the NASDAQ in the 2000-2002 bear, 4-star and 5-star ratings didn’t adjust until after the dot-com disaster. In other words, Janus mutual funds didn’t receive 1-star and 2-star ratings until it was too late for investors.

Yet, to be fair, Morningstar has come a long way in a very brief time. The company improved upon their mutual fund rating system in the 2000s, hired qualified financial analysts to research and rate individual stocks, as well as add ETFs to their assessments. Today, Morningstar can offer fair value estimates on scores of ETFs based upon proprietary valuations of the underlying stock holdings in the ETFs. That’s far more sophisticated than the old Morningstar method of using relative performance data alone.

Form time to time, I check in with the ratings giant. Premium Members are privy to ”ETF QuickRank,” where an investor can sort a variety of ETFs by a valuation rating. Based on an ETF’s current price as well as a proprietary methodology for determining fair value, Morningstar may designate an investment as “overvalued,” “fairly valued” or “undervalued.”

Undervalued designations will have some of the lowest “P/FV” ratios in the database. And for the purpose of this exercise, I wanted to take a look at 3 of the lower P/FVs around:

1. Market Vectors Steel (SLX). Morningstar currently shows an overall, 1-star rating for SLX. It seems a bit ironic to give the lowest possible rating to an ETF with one stroke of the keyboard, then serve up a quick-rank “undervalued” valuation rating with a P/FV of .72. In fact, you won’t find a less expensive price tag than this steel-producer investment in the entire Morningstar quick-rank listing.

There may be a critical reason for why the most undervalued bargain on the board receives the lowest overall rating (1 star) possible. I imagine it is primarily a function of the dramatic underperformance of steel producers in 2011, particularly international steel producers; iron ore prices have been erratic and global demand plummeted. That said, if China is indeed on its way back from the “forgotten,” resources-related investments may bounce back in a big way in 2012. 

2. iShares DJ Oil & Gas Exploration (IEO). Exploration and production of oil and natural gas may be a risky endeavor, but the potential reward for selecting IEO may be worthy of the investment risk. Not only do the folks at Morningstar give IEO an overall rating of 4 stars, but the current price is roughly 20% below the fair value estimate (P/FV =.81).

On the other hand, IEO is highly dependent on the price of oil and natural gas — commodity prices that are prone to extreme fluctuations. Natural gas is so cheap in the U.S., in fact, that many of these corporations are hoping to export their discoveries abroad. The political risk involved with exporting fossil fuel makes it even more difficult to identify IEO’s prospects.

Here, then, it might be best to incorporate favorable fundamental ratings with some technical analysis. Below, we can see that IEO is above its 50-day and 200-day moving average. That said, IEO made a similar move in November that didn’t hold up.

3. iShares DJ Telecom (IYZ). At first glance, I was a bit surprised to see telecom on the undervalued list. After all, Verizon and AT&T constitute 1/3 of the investment returns. And with the stocks of both companies performing so well recently, I would have expected IYZ to receive a less attractive ”fairly valued” rating.

On the other hand, telecom giants are increasing part of the TV/Internet picture. (They’re not just for phone lines anymore.) Moreover, businesses are using networks to move data from point A to point B. And the ever-increasing world of mobile services accounts for a substantial portion of telecom revenue. Plus, IYZ would need to climb 16.5%… just to get back to previous 52-week highs.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFseasier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

The most common reason cited for P/E contraction in 2011? The Euro Zone debt crisis.

Obviously, sovereign debt concerns have not disappeared in 2012. That said, will its impact be as dramatic over the current 12 months as it was in the prior 12 months? Maybe not.

Let’s consider the possibility that investors are beginning to feel that Europe’s “situation” is already being discounted by the markets. In this scenario, we would likely experience P/E reversals; that is, the S&P 500 and its individual economic sectors could conceivably revert back to the P/Es that existed on 1/1/2011. 

Using the S&P 500 as a guide, current estimates for profit growth in 2012 are for a less robust 10.2% earnings expansion. If the S&P 500 reverts back to its P/E ratio price tag from the start of 2011 — with 10.2% profit growth in 2012, 15% growth in 2011, and 0% price gain in 2011 – one might expect a 25.2% gain for the S&P 500.

Is a 25.2% gain for the S&P 500 reasonable? Perhaps.

If the S&P 500 logs a 25.2% gain in 2012, it will reach 1573 – smack near the October 2007 all-time highs. On the surface, hitting or reaching the October 2007 highs may sound like a big deal. However, the December 2012 P/E would be far lower than the October 2007 P/E… still making stocks much cheaper than they were 5 years earlier. 

Of course, these numbers are for the S&P 500 as a whole. What if we applied the same P/E reversal thinking to the 9 S&P Sector Select SPDR ETFs? What might a respective Sector ETF gain (or lose) by the end of 2012, if we make the same assumptions about reverting to the price-to-earnings ratio of 1/1/2011.

Notice that each of the 20%+ returns come from the economically sensitive cyclical segments — Materials (XLB), Energy (XLE), Technology (XLK), Financials (XLF) and Industrials (XLI). Intuitively, this is not difficult to comprehend. The 2011 leaders came from the defensive segments, like health care, staples and utilities.

It follows that the only realistic shot for P/E reversion to occur in 2012 is for the global economy to find itself in increasingly better shape by the end of the year. If China begins to stimulate its economy through monetary and fiscal easing, if Europe gets beyond the notion of multiple Euro Zone defaults, and if the U.S. can continue to make muddle-through strides in the right direction, we may indeed get the super-sized gains out of the cyclical Sector ETFs.

Is 41% out of SPDR Select Materials (XLB) realistic? It has already claimed 9% out of the 2012 gates, better than the other segments.  Ironically enough, XLB registered 43% in 2009.

On the other hand, the P/E ratio hardly represents an exact science. For example, utilities may be slightly overvalued, but we have entered a period where yield may be every bit as important to he investor as capital appreciation. A slow-growth sector doesn’t necessarily have to fall -14.6% because its multiple is a bit higher than the historical average; rather, the earnings yield of 6.85% and dividend yield of 3.85% may be the perfect risk-reward scenario for conservative investors who want more from money markets or paltry treasury yields.

Keep in mind, I am not recommending that one make a whole-scale shift out of defensive equities and into cyclical sectors like Energy (XLE) or Technology (XLB). In fact, I have plenty of income-oriented positions from diversified high yield to MLPs to dividend producers; indeed, I still expect faith-shattering volatility in the 1st half of 2012. By the same token, it’s important to point out that P/E reversion is a distinct possibility and that… if it happens… higher-beta, riskier sectors may thrive.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Consider the performance of some of the castaways from 2011. Market Vectors Nuclear Energy (NLR) rocketed 2.4%. PowerShares Global Water (PIO) swam upstream for a formidable 3.2%. And Market Vectors Coal (KOL) corralled a smoking hot 5.6%.

Is this the evidence one needs for climbing back aboard the ”Natural Resources Express?” After all, even a European recession can’t put a permanent dent in the global growth story, as industrializing nations are still consuming more and more energy.

Unfortunately, the idea that worldwide demand will continuously outstrip global supply may be flawed. We’ve already seen how natural disasters can come close to destroying an entire industry like nuclear energy. We’ve also seen how systemic shocks can beat down infrastructure plays like water.

In contrast, some of the the very same forces that may cripple other resource-related investments (e.g., uprisings in the Middle East, nuclear tensions with Iran, etc.) may actually benefit the producers of “black gold” as well as the price of the commodity itself. Take a look at the differences in performance between oil-related and non-oil-related ETFs (and total commodity ETFs) below:

Granted, other than the ever-deteriorating value of natural gas prices stateside (we’ve got a century’s worth of this stuff), all of these resource-related investments soared out of the gate. On the other hand, the resilience of crude oil in 2011 should give investors a clue on the better way to play global growth; that is, the energy sector via funds like iShares DJ Energy (IYE) or the commodity via United States Brent Oil (BNO) may have a better shot at weathering — even profiting from — the next storm.

Oil bulls might also want to take note of the price on iShares DJ Energy (IYE). It has risen back above its 200-day, long-term moving average.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Looking forward, however, there may be reasons to cheer. China has shifted from restrictive fiscal and monetary policies to more accommodating ones. U.S. economic data continues to show modest improvement. And European leaders will — one way or another – find themselves taking monumental steps to stabilize the region’s financial system.

These things alone should be enough to boost the prices of undervalued energy corporations. Yet now, there may be a reason to overweight companies that derive a substantial portion of revenues from the exploration, production and exporting of natural gas.

In the coming weeks, U.S. officials are set to determine the extent to which American energy firms can export the commodity. Suppliers like Conoco-Phillips (COP) are chomping at the bit to profit from markets like Asia, where natural gas prices are 3-4x the price here in the U.S. Can you say… “profit motive!”

On the flip side, government regulators worry that natural gas prices might rise precipitously if American energy companies ship away an abundant domestic supply. Of course, most studies (and outcomes) demonstrate that the free market does a better job determining fair market value than intrusive regulatory bodies.

Assuming U.S-based energy firms get the green light to export natural gas, one could expect an enormous boost in corporate profits. And, by extension, when earnings matter to the stock market again, one might want to invest in natural gas producers.

Rather than attempt to pick the ”nat gas” winner, keep an eye on First Trust ISE Revere Natural Gas (FCG).  This fund tracks an equal-weighted index of attractively-priced, exchange-listed natural gas producers, including Conoco Phillips (COP), Exxon Mobil (XOM) and Cabot Oil & Gas (COG).

The fundamental picture for First Trust ISE Revere Natural Gas (FCG), like many equity funds, is exceptional. Whether one is looking at price-to-sales (P/S) of 1.6 or P/E of 12.5, it’s clear that FCG is attractively priced.

On the other hand, this exchange-traded stock fund has yet to break through technical resistance levels. At the very least, one would want to see FCG rise above a 50-day moving average. For longer-term confirmation of a bull market uptrend, the current  price of FCG would need to eclipse its 200-day trendline.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

On these simple assessments, those who chose the PowerShares DB Precious Metals Fund (DBP) have seen their selection rise 22% over the previous 12 months; those who selected the PowerShares DB Oil Fund (DBO) have been rewarded with roughly 7% year-over-year.

However, other than a few choice commodities — gold, silver, oil — heavy exposure to additional exchange-traded commodity funds/notes have others feeling numb. Natural gas, grains, timber, copper, diversified agriculture and diversified industrial metals have underperformed U.S. stocks as measured by the S&P 500 SPDR Trust (SPY).

In part, the poor performance can be attributed to the growth slowdown in China. That said, Chinese officials recently shifted from a tightening bias to a loosening bias with a lowering of their bank reserve requirements.

In theory, the increased likelihood of a soft economic landing in China coupled with increased demand for ”stuff” should have boosted underperforming commodities over the previous week. In practicality, however, industrial metals jumped on the China news, whereas other Commodity ETFs/ETNs failed to fully support a “risk on” appetite.

It is possible, if not probable, that ongoing concerns over a pan-European recession is depressing commodity prices. What’s more, there is still an unusually high demand for U.S. dollars, dampening desire for commodity assets which are priced in greenbacks.

Nevertheless, one should continue monitoring China ETFs as well as China economic data. The more evidence for a soft economic landing in China, the more likely that commodities of all stripes would recover bullish momentum.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

Keep in mind, most of the media attention centers on the discretionary spending of the consumer (e.g., “Black Friday” widescreens, ”Cyber Monday” acquisitions of the new Kindle, etc.). However, non-discretionary consumer stocks are also on fire.

Has the battered economy dampened our collective desire to smoke Marlboros? Or drink Jose Cuervo Tequila? It certainly wouldn’t appear so. Indeed, we’re quite willing to pour non-dairy creamer in our coffee cups, eat Egg-McMuffins for breakfast and savor Kraft Macaroni & Cheese for dinner.

The new 52-week high list trickles down to top performing ETFs as well. In fact, exchange-traded stock funds like SPDR Sector Select Consumer Staples (XLP) reside near the top of the year-over-year performance list.

Many may question if it is too late to get into more conservative non-cyclicals. The answer is… “Probably not.” Consider the 12-week changes in relative strength percentile rank of the 10 major economic sectors below:

Modest improvement in the U.S. economy — stable jobless claims, GDP acceleration, strong corporate earnings, retail spending records, manufacturing expansion — have given a boost to some cyclical ETFs.  Most notably, Technology (XLK) and Consumer Discretionary (XLY) have moved into the upper echelon of relative performance; meanwhile, Industrials (XLI) have put together a “whopper” of a percentage change in relative strength rank from 12 weeks ago.

Nevertheless, the 3 primary non-cyclical stock ETFs — Health Care (XLV), Utilities (XLU), Staples (XLP) — have all become even stronger in these past 12 weeks. This sugggests that non-cyclicals are performing as well as they ever have in terms of momentum. Equally compelling, they may be less affected by systemic shocks and uncertainties.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

However, there are a wide variety of themes that come up… over and over again. Some of the themes come from a place of greed, though the overwhelming majority come from a place of fear.

Here are 3 of the most common recurring ideas that I have listened to over the last quarter century. Alongside each idea, I am offering an ETF enthusiast’s carefully crafted rejoinder:

1. “Decades of debt-fueled excesses will crush the industrialized world, and it’s too late to do anything about it.”

Ahhh… the doomsday screenplay. Of course, if you happen to write an article suggesting why Italy will not fail, scores of hate-mongers will tell you that you’re ignorant.

Yet central banks around the world did act in a coordinated effort, demonstrating that the world is willing to commit to the free flow of credit. What’s more, China did begin easing. (I anticipated both of these steps in my previous commentary.)

In fact, it may not be the actions taken on the last day of November that sent the Dow up close to 500 points; rather, it was the willingness of major world powers to work together — from China to Japan to U.S. to Canada.

If a doomsday prophecy is going to come to pass, then the only good investments are canned goods and water. On the other hand, if you believe that financial markets will exist – even with bear markets and bullish recoveries — there’s no reason to ignore investments that benefit from China beginning to ease; there’s no reason to doubt the reality that many corporations will continue to thrive over the next decade, selling products and services to an upwardly mobile middle class in China.

Consider iShares MSCI Malaysia (EWM) as an investment in GDP expansion in China as well as middle class success on the mainland. More aggressive investors can certainly tap China directly with S&P SPDR China (GXC).

2. “They rig the stock market for the big boys and fancy traders; the small fries have no chance to succeed.”

Certainly, hedge funds and institutional investors have advantages. Whether it is high-frequency technical trading or sophisticated shorting and hedging, I agree… money managers can do a number of things that an individual investor can not.

On the flip side, the more money managed, the less agile an institutional investor can be. Rules, regulations and restrictions abound. And it’s a heck of a lot more challenging selling 200,000 shares in a block account for an ETF with a daily average volume of 500,000 shares than it is for one individual to execute a stop-limit loss order.

I like iShares High Dividend Equity (HDV) for the 150 basis point superiority over the 10-year U.S. treasury as well as the high probability that these large, stable companies will raise their dividends consistently over the next decade. Rising dividends, compounding… that’s a heck of a lot more worthy than a fixed yield of 2%.

You can get in or out of HDV at a price point that you want with ease. The big, mean institutional money? It may not be able to get it at all, or it may take 3 days to work the trade slowly over time.

3. “The return of your capital is more important than the return on your capital.”

Really? Sure, that little snippet comes across as savvy and erudite in bear markets. Of course, 99% of people would not be able to retire on the return of their capital.

There is something like $9 trillion wasting away in bank savings accounts. Most of that money is paying homage to the 2008 subprime-induced collapse. Yet even investors who chose conservative risk in 2009, 2010 and 2011 have earned a decent return on their principal.

I don’t know when more of that ”cashola” will find its way back into equities. But I know that it will. In fact, I’d be more worried if all of that savings fueled speculative share purchases of Zynga and Facebook!

Make your financially life better by ”banking” on countries that can pay their debts via PowerShares Emerging Market Sovereign Debt (PCY). That’s a 5% coupon worth clipping, and probable capital appreciation as emerging markets continue to ease. Recognize that the transportation system for oil and gas can be owned with JP Morgan Alerian MLP (AMJ) and clip that 5% coupon as well.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

It follows that articles that primarily attribute falling equity markets to the U.S. Super Committee’s failure to reach an accord are misleading. Granted, political dysfunction does increase uncertainty about the future, and the markets can’t stand uncertainty. Nevertheless, the only real thing moving the benchmarks has been the outlook for debt crisis containment in Europe.

Need proof? As recent as September, many economists were predicting a U.S.-based recession based on U.S. data points. Yet that talk has been placed on the back burner after phenomenal earnings growth, a 7-month low in unemployment claims and GDP economic acceleration.

(Note: GDP growth in the U.S. is far from superb. However, we should recall that it has gone from 0.4% in Q1 to 1.3% in Q2 to 2.0% in Q3. The average GDP forecast for Q4 GDP growth currently exceeds 3%.)

With a number of building blocks in place — stellar E/P yields, historically attractive P/Es, healthy corporate balance sheets, accelerating U.S. GDP growth, subsiding inflation in some emerging markets — why have markets shed 100 points on the S&P 500 in a matter of weeks? What’s behind the 8% pullback from recent highs and 12.5% since April of 2011?

The answer is as simple as a chart of the CurrencyShares Euro Trust (FXE). The euro-dollar via FXE tumbled in September, as did stock assets. FXE rebounded sharply in October, as did stock assets.

Unfortunately, the European Union’s chances for preventing its debt woes from going viral appear to be waning. Specifically, in November, FXE is on the decline once more.

In my estimation, I would stick with the low volatility ETFs and non-cyclicals if FXE remains below a 50-day moving average. In this regard, I’ve been advocating funds like PowerShares S&P Low Volatility (SPLV) and JP Morgan Alerian MLP (AMJ).

On the flip side, Santa Claus may yet ride his sleigh in December. We’ll know it… if FXE climbs back above (and stays back above) its 50-day trendline.

Below are 7 ETFs that would likely rocket higher if confidence in the euro-dollar returns. These are some of same index trackers that significantly out-paced the S&P 500 during a month when FXE gained substantial ground. 

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

First, a quick primer on energy pipeline partnerships. Energy MLPs typically own the pipelines that transport crude oil and natural gas throughout the country. Although the underlying commodity can affect their price, the more significant driver tends to be genuine supply and demand. Most importantly, investors often buy MLP shares as “income producing properties,” since the distributions often range from 5% to 7%.

There are many reasons for investors to avoid individual MLPs, from the tax headaches to the difficulty in identifying the best prospect. Yet the reasons to gain MLP exposure via an exchange-traded vehicle are increasing by the minute.

1.) Technical Uptrend. A number of stock ETFs may have risen above a shorter-term, 50-day moving average. Yet very few have recovered a longer-term 200-day trendline. UBS MLP Alerian Infrastructure (MLPI)  has done exactly that. What’s more, it boasts “higher lows” since the month of August.

2. Attractive Yield Spread. The ALPS Alerian MLP ETF (AMLP) currently boasts a 6.2% annualized yield. The historical spread between 10-year treasuries is currently 400 basis points, when it might normally be closer to 250 basis points; the yield spread between AMLP and the iShares 20+ Year Treasury (TLT) is also wider than the historical average. Topping it off, AMLP has genuine potential for capital appreciation, whereas individual treasury bond debt matures and is currently priced near record lows.

3. Low Correlation With Other High Yield Instruments. In a play-by-play financial crisis (e.g., subprime 2008, sovereign debt 2011), virtually all risk assets move together. The most troubling aspect of the “risk on-risk-off” phenomenon is the difficulty in diversifying one’s portfolio with low-correlating assets.

That said, the JP Morgan Alerian MLP ETN (AMJ) has very slight negative correlations with a number of high-yielding investments. The 1-year correlation coefficients with SPDR Select Utilities (XLU) and iShares JP Morgan Emerging Market Bond (EMB) are -.09 and -.30 respectively.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

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. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.