Despite a rough beginning, 2010 will go down in history as the year the financial recovery started. The stock market has begun to see the fruits of the massive government cash injections, pro business tax policies and quantitative easing measures designed to lift the economy from recession. The controversial Federal kick start's success has been reflected in the stock market bullish posture. In fact, right now it looks like stocks may close out the year out on the high.
Provided the positive momentum underway, how should investors position themselves to benefit from the bullishness? Many are advocates of listening to what successful professional money managers have to say in this regard. However, most of these guys are no better than a dart board when it comes to investment advice. However, there are a few exceptions to this rule. Greenlight Capital's David Einhorn is one of the very few hedge fund managers who have my utmost respect. His record speaks for itself over the last few years. With this said, Einhorn is an advocate of buying strength in strong sectors heading into 2011. He believes in avoiding the traditional pull back plays of buying weakness within a strong sector saying, "the current stock market is bifurcated, meaning that high value companies that are rallying will continue to do so, but high value companies that are not moving higher will continue to wallow at depressed levels". In other words, classic momentum investing combined with a solid fundamental picture is what's working now. Taking this philosophy and applying it to the world of ETF's appears to be the wisest move entering 2011. Let's take a closer look at the hot sectors and corresponding ETF's.
Surprisingly, provided the job situation, the consumer discretionary sector is burning hot right now. It is up over 25% so far this year. One of the most popular bullish ETF for the consumer sector is Vanguard's Consumer Discretionary VIPERS (AMEX:VCR). It's been in a serious uptrend since July, 2010 and is trading solidly above both the 50 and 200 day Simple Moving Averages. Leading this ETF higher is McDonald’s (NYSE:MCD), the top holding in the portfolio. The fast food chain has gained more than 26% this year and accounts for more than 5% of the portfolio.
Next in line for surging areas is the industrial sector. It is showing gains of over 20% in 2010. iShares Dow Jones US Industrials ETF (AMEX:IYJ) is reflecting this bullish move by uptrending since July. It's 50 and 200 day Simple Moving Averages have just completed a technical crossover indicating further upside room. The top stock in this portfolio is General Electric (NYSE:GE), accounting for more than 10% of the fund. While GE has lagged the ETF’s performance this year, the company has raised its dividend twice in 2010, possibly signaling better times are ahead for the industrial giant.
The third sector on the most bullish list is the Materials sector. Representing materials is the Material Select Sector SPDR (AMEX:XLB). This ETF has been climbing since June. The 50 and 200 day Simple Moving Averages have just completed a bullish crossover painting a strong technical picture. The largest stock in this ETF is Freeport-McMoRan Copper & Gold (NYSE:FCX), accounting for almost 13% of the fund. This mining company is up almost 40% in 2010 and recently announced a special dividend of $1.00 per share, an increase to the annual dividend and plans for a 2:1 stock split in early 2011.
There is no way anyone can forget the massive up move in gold over the last 2 years. As economic tension around the world is showing few signs of abating, the Gold Trust Shares SPDR (AMEX:GLD) looks like a strong choice entering 2011. Price keeps hitting new highs and its trading solidly above the 50 and 200 day Simple Moving Averages.
Finally, following in gold's footsteps is the lesser precious metal silver. The perfect ETF to capture potential additional moves in 2011 is iShares Silver Trust (AMEX:SLV). It has been climbing strongly since the end of August with a few sharp pullbacks. $30.00 looks to be technical resistance at this time, but with the US government increasing the deficit, the resistance could fade.
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