McCall’s Call: ETFs For 2011, Part I

December 22, 2010

With 2011 just around the corner, it's time to look at hot ETFs for the New Year.


U.S. stock markets are about to close out 2010 on a high note with all major indexes trading near two-year highs. It’ll also be the second straight year of gains.

Matthew D. McCallUnfortunately, many investors missed a majority of the rally in 2010 as they sat on the sidelines waiting for the double-dip recession to occur. But now that the probability of a double-dip has subsided, I think there are good reasons to be in stocks, and I’ll try to make the case for reluctant investors to move at least some of their money out of cash and into equities next year.

I was bullish throughout 2010 and remain bullish heading into 2011. My price target for the S&P 500 Index is 1500. That’s based on attractive valuations, the midterm election cycle as well as economic and technical factors. To put my outlook in context, the S&P 500 closed on Dec. 22 at 1258.84. Plainly stated, earnings seem to again be growing at a solid pace.

Typically I skirt the question of what my favorite investments are. But I’ll stick my neck out this time and share some of my favorite ETFs heading into 2011. I chose these funds because they reflect long-term investment themes I’ve been focused on for a while.

I’ll start with the first five now and fill in the rest next week in my final column of 2010.

Financials And Emerging Markets

Financials seem like a good place to start. The large-cap financial stocks have been battered in the media as the culprits behind the financial collapse that arguably were one of the greatest contributors to the recession. Whether you subscribe to that, the bottom line is that investors must now analyze the sector going forward.

I think large-cap financial stocks will outperform the market in the coming year as investors realize the value in the beaten-down sector. My recommendation is the SPDR Financial Select Sector ETF (NYSEArca: XLF), which invests in a basket of 83 U.S.-based financial firms. The ETF has an expense ratio of 0.23 percent and a dividend yield of 1.0 percent.

Investors searching for exposure to the emerging markets as well as an above average dividend yield should consider the WisdomTree Emerging Markets Equity Income ETF (NYSEArca: DEM).

The ETF currently pays out a 4.5 percent dividend with an expense ratio of 0.63 percent. Taiwan and Brazil each make up about 19 percent of the ETF. Other top countries include South Africa, Turkey and Israel. DEM also has a big concentration in the telecom and financial sectors because it invests in companies that have relatively high payouts.


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