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Sam Subramanian

Exchange Traded Funds (ETFs): Best, Worst, and 2010 Forecast

Sam Subramanian PhD, MBA

Exchange-traded funds (ETFs) are continuing to gain in popularity. At the end of 2009, $782 billion in assets are invested in ETFs, up nearly $247 billion or 46% from 2008. ETFs received close to $119 billion in net money inflows.

Two new ETF sponsors Global Shares and Faith Shares have come in 2009 and 126 new ETFs have been added. iShares with $372 billion spread over 190 ETFs dominates the ETF world.

The following trivia can shed useful insights on which exchange-traded funds, asset classes, sectors, or regions are popular ... perhaps too popular ... and where contrarian investors can find plump opportunities.

Here we go with the 2009 ETF Q&A based on data compiled by PowerShares:

Q. Which ETF had the highest net inflow?
A. SPDR Gold Shares (GLD) at $13.6 billion.

Q. Which ETF had the highest net outflow?
A. SPDR S&P 500 (SPY) at $19.4 billion.

Q. Which asset class performed best?
A. Emerging market stocks with a 78.5% gain.

Q. Which asset class performed worst?
A. Developed market foreign bonds with a 1.3% gain.

Q. Which U. S. stock category performed best?
A. Mid cap growth with a 46.3% gain.

Q. Which U. S. stock category performed worst?
A. Large cap value with a 19.7% gain.

Q. Which sector performed best?
A. Technology with a 61.7% gain.

Q. Which sector performed worst?
A. Telecom services with an 8.9% gain.

Q. Which region performed best?
A. Latin America with a 104.2% gain.

Q. Which region performed worst?
A. Japan with a 6.3% gain.

Q. Which income category performed best?
A. High-yield debt with a 57.5% gain.

Q. Which income category performed worst?
A. U. S. 10-year treasury with a 9.7% loss.

Q. Which currency performed best?
A. Brazilian real with a 33.8% return.

Q. Which currency performed worst?
A. Japanese yen with a 2.6% loss.

2010 ETF Forecast: In-Favor and Risky

Investments that are ‘hot’ seldom live up to their promise. iShares Emerging Markets ETF (EEM) and SPDR Gold Shares (GLD) with assets of $39.4 billion and $40.2 billion, respectively arguably fit the bill.

2010 ETF Forecast: Out-of-Favor and Improving

Contrarian plays that are supported by sound fundamentals can deliver exceptional returns when the turn actually occurs.

iShares MSCI Japan ETF (EWJ) and iShares MSCI Small-Cap Japan ETF (SCJ) can become interesting in 2010. A weaker yen for one helps Japanese exports. Additionally, mid- and small-sized Japanese companies trade at attractive valuation metrics.

Other assets that are out-of-favor include the U. S. dollar, interest-rate sensitive sectors like utilities, and large-cap U. S. stocks.

The U. S. dollar can fare better if European economies take longer to recover. PowerShares DB US Dollar Index Bullish ETF (UUP) offers a means to play the upswing in the dollar.

Concerns of tax rates on dividends being raised are among the factors that need to be watched before venturing into Utilities Select Sector SPDR (XLU).

And finally ... large-cap U. S. stocks. This much-maligned asset class is due for catch up. Whether it will actually do so in 2010 is a topic for some debate. Strengthening U. S. economic growth supported by rising exports and technology spending can help large-caps. If large-caps do come into favor, SPDR S&P 500 (SPY) should trump iShares Russell 2000 Index ETF (IWM). Investors seeking to earn higher returns with lower risk can turn to Select Sector SPDR ETFs.

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In 2009, AlphaProfit's proven investment process correctly called SPDR S&P Retail's 75% gain and in 2008, avoided Financial Select Sector's 55% loss. Ride on 2010's best ETFs and reward yourself. Subscribe to the AlphaProfit investment newsletter now!


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AlphaProfit MoneyMatters is a free e-letter distributed to registered users of AlphaProfit's website. The e-letter analyzes the economy, markets, and sectors and provides money-making insights on stocks, exchange-traded funds, and mutual funds. AlphaProfit MoneyMatters is edited by Dr. Sam Subramanian acclaimed for his financial acumen and analytical skills.

AlphaProfit Investments, LLC is an independent investment research firm based in Sugar Land, TX. AlphaProfit publishes the AlphaProfit Sector Investor's Newsletter, edited by Dr. Sam Subramanian. Leveraging sector funds, the Newsletter provides high-performance model portfolios with Fidelity funds and exchange-traded funds. It also includes actionable stock recommendations. This newsletter features among MarketWatch's top 10 investment newsletters and has won the coveted #1 rank from Hulbert Financial several times.

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