Top ETFs for 2010:
Gold ETF, Commodity ETF, Bank ETF, and
Asia ETF Picks to Add to Your Portfolio Today

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In a 2008 joint survey of investment professionals conducted by State Street Global Advisors and the Wharton School of Business, 67% characterized exchange-traded funds (ETFs) as “the most innovative investment vehicle of the last two decades” and 60% stated that ETFs had “fundamentally changed the way they constructed investment portfolios.” 

The actions of investment professionals speak just as loudly as their words; ETFs are the fastest growing segment of the mutual fund industry. Between 2001 and 2008, US-based ETF assets grew at an astounding compounded rate of 44% per year!  The global ETF business has grown into a more than $1 trillion industry.  Although still smaller than the $19 trillion in traditional mutual fund assets, ETFs may one day surpass mutual funds given their inherent advantages.

What is it about ETFs that have taken the investment industry by storm?  While both ETFs and traditional mutual funds offer investors the benefit of “instant diversification” at a relatively low cost, there are at least six advantages ETFs have over traditional mutual funds:

1. Lower Management Fees

2. Lower Fund Transaction Costs

3. Direct Commodity Exposure

4. Portfolio and Price Transparency

5. Lower Minimum Purchase

6. Trades Like a Stock

Understanding the general advantages of ETFs is only half of the battle, however. The question remains which industry sectors and which specific ETFs within those sectors are most likely to become the top ETFs for 2010 and beyond.  Not every ETF is inexpensive and some track strange, custom-built indexes that include unexpected (and unwanted) securities. You need to know the difference between the ETFs that should be avoided and which are the true gems that must be bought.

Based on my in-depth analysis of industry trends, I have uncovered the five best ETF investment themes for 2010: (1) bank ETF; (2) general Asia ETF; (3) country-specific ETF; (4) commodity ETF; and (5) gold ETF.  In my FREE report, I reveal the specific ETFs within these sectors primed to deliver the largest out-performance potential. 

Keep reading to discover the best bank ETF, Asia ETF, country-specific ETF, commodity ETF, and gold ETF for 2010!

Top Bank ETF for 2010—
A Pure Play on Regional Banks

In the immediate aftermath of Lehman Brothers’ collapse, the fate of the US financial system was in doubt.  But after more than a year of the Federal Reserve throwing virtually free money at the banks, the financial system is back on stable ground. Right now, I favor the community-based banks and smaller regional institutions over the large money-center banks. Because most lacked the wherewithal to fully participate in the lending frenzy that preceded the crisis, many smaller banks boast healthy balance sheets and are leveraging their relative strength to make acquisitions in their markets.

Three “regional bank” ETFs currently trade on US exchanges, but two are guilty of blurring the lines defining regional, super-regional and money-center banks. It’s important to know what you’re buying.

My favorite bank ETF for 2010 lives up to its name by applying an equal-rating methodology to its portfolio of 50 holdings. It doesn’t include any super-regional names, providing pure play exposure at a much lower cost.

Top Asia ETF for 2010—
Broad Foreign Exposure at a Bargain Price

Economic growth is shifting from the developed economies to the developing ones, and Asia is leading this transformation. Unlike the U.S. and Western Europe, Asia isn’t facing a painful de-leveraging process; banks, consumers and companies enjoy low debt levels. Ignoring the dynamism of Asia will ultimately stymie your portfolio’s growth. Its viability is becoming clearer by the day; the US and other indebted, slow-growing economies simply can’t offer the returns to which growth investors are accustomed.

Asia can easily grow three times faster than advanced economies. The region has entered a cycle of capital investment, infrastructure spending and domestic consumption that’s still in its early stages. Ignoring Asia outright will prove to be one of the biggest mistakes an investor can make.

This Asia ETF provides exposure to all of the key Asian trends, from the infrastructure build-out in China and India to the rise of the Asian consumer and the maturation of regional financials.

My top Asia ETF for 2010 offers broad Asia exposure while charging an expense ratio of just 0.72 percent, handily beating comparable mutual funds.

 

Top Country-Specific ETF for 2010—
Small Asian Country with Strong Economic Growth and Declining Tax Rates

My favorite country-specific ETF for 2010 is viewed as a defensive play among emerging markets because its economy is diversified and does not move in lockstep with one or two commodities like Brazil and Russia. 

The economic outlook is moving in the country’s favor; 2010 is forecast to be a solid year for the economy, with its gross domestic product (GDP) growing 5 to 6 percent. At the same time, fiscal and monetary policies remain supportive. The government continues to provide direct stimuli, and the central bank is expected to keep monetary policy unchanged in 2010--interest rates are currently at an all-time low. Global economic growth should improve next year, which bodes well for exports.

The government plans to reduce the highest marginal tax rate for individuals from 27 to 26 percent, following a 1 percent reduction in 2008. At the same time, the level of personal tax relief has been raised from USD$2,300 to USD$2,600.

Bottom line: I see my top country-specific ETF for 2010 as a low-risk and high-return way to tap into the Asian growth boom this year.

Top Commodity ETF for 2010—
Well-Diversified and Tax-Advantaged

As the global economic recovery gains steam, commodities prices are once again on the rise. China’s insatiable demand for vital resources is one factor driving commodities prices higher; the country remains the world’s workshop, and its government continues to buy up resources around the global.

Our top commodity ETF for 2010 is the best way to gain exposure to these trends. Currently weighted 25 percent towards industrial metals, 25 percent to agricultural commodities, 11.8 percent to precious metals, 5 percent to livestock and 32 percent towards energy, the fund reaches into every corner of the commodity market.

Technically structured as an exchange-traded note (ETN), this commodity ETF closely replicates the performance of its underlying index with little tracking error. The ETN structure offers tax advantages relative to commodities funds that use futures or structured notes to track their indexes.

My top commodity ETF for 2010 should be an important part of any portfolio, both as a short-term play on the continued global recovery and as a long-term bet on further growth in emerging markets.

Top Gold ETF for 2010—
A Low-Cost Hedge for Your Portfolio

The combination of gold’s wonderful physical properties and its limited supply explain why it has been used as an absolute store of value the world over for many centuries. Gold is a great hedge against inflation and economic crises. The values of fiat currencies and stock and bond markets are based on confidence. When confidence is shattered, only the value of gold remains.

Unlike a gold ETF that uses derivatives to gain gold exposure, every share of this Gold ETF is backed by about one-tenth of an ounce of physical gold held in vaults buried deep below the streets of London.

And despite all of the convenience the fund offers, it has one of the most reasonable expense ratios in its category—just 0.4 percent. The average fund in the category charges at least 1 percent. We recommend that investors allocate about 5 percent of their portfolio to my top gold ETF for 2010.

To get the full details, download your FREE copy of Top ETFs for 2010: Gold ETF, Commodity ETF, Bank ETF, and Asia ETF Picks to Add to Your Portfolio Today, right now and find out the names of each of these Top ETFs for 2010.

With my sincere best wishes for success in your ETF investing,

Benjamin Shepherd

Editor, ETF Weekly and Global ETF Profits

 

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