Top ETFs to Buy this Week

The January effect is coming sooner than you think. Capitalize on the upside with these ETFs.

By InvestorPlace Nov 29, 2010 5:16PM
We got blindsided by external events last week. Ireland’s cry for help followed by hostilities in Korea conspired against the market.


I would not be deterred. Our Top ETF Buys for last week made money versus a loss for the overall market. I’m expecting the same this week.


My favorite top buy for the coming week is the ProShares Russell 2000 (IWM).


The January effect is coming earlier and earlier. I expect small cap stocks to do well in December.


Here are my five top buys for the week:


SPDR S&P China (GXC) – We need China to reign in the isolated and dangerous North Korean government. With so much at stake there can be no other outcome. With the situation in the Yellow Sea resolved look for Chinese stocks to rally hard this week. Buy the GXC for big profits.

ProShares Ultra Consumer Goods (UGE) – Black Friday was a huge success. Retail sales are going to beat expectations. Owning a retail ETF makes a ton of sense. If we get a boost in spending, now that would really be something. The leveraged UGE is a great way to play an expected rally in stocks. Remove the uncertainty of Korea and Ireland and away we go.


SPDR S&P Semiconductor (XSD) – The hot retail item will have the semi-conductor at its core. The semiconductor ETF did well last week and that trend will continue this week. The XSD rally will continue.


ProShares Russell 2000 (IWM) – Here is a great secret for investors: the January effect starts now. Lost in the panic selling of last week were nice gains for small company stocks. Imagine what the returns will be with a positive market. Absent global instability, the Russell 2000 will be the big winner in the early part of December.


ProShares Short S&P 500 (SH) – The ETF that will allow us to sleep easier next week is the SH. With the market down last week we preserved our gains from the XSD and IWM with the position in the SH. This week, I expect the market to be up thus our position here will likely mute our returns. That’s ok as we can use the insurance policy given the solid gains here over the last two months.


An equal position in these five funds will likely generate that quarter percent return or more. It will also allow you to sleep easier if things go astray in other parts of the market.


So exactly what are we trying to accomplish here with my weekly top ETF buys?

I started this column as a roadmap for investors looking to generate weekly income. The idea being that yields had fallen so low that those dependent on the markets for income were left high and dry.


How in the world do you make any money buying treasuries at current rates?


Investors looking for income are left chasing high yielding dividend stocks or real estate investment trusts. Both of those options put capital at significant risk. What if there was a better way.


I’ve found that better way with my absolute return approach to investing in the markets. Applied here the idea is to manage risk while generating returns and big returns at that. Here’s an approach that allows investors to sleep easy at night while producing double digit income.

All it takes is one quarter of one percent each and every week. That is a small hurdle to reach and with the volatility in the market the returns are there to be had. The vehicle of choice is the ETF.


These ETF’s provide exposure to many different markets or sectors long or short. It is that short exposure or hedging ability that gives absolute returns the power to reduce risk without sacrificing gains.


Last week we were ambushed by outside macro-events that took markets lower across the board. How did we fare? With the S&P 500 down .7% our five picks generated a positive return of .3%.


Mission accomplished!


At the current pace we will hit a return of 24%. The best part is that those gains can be had while preserving capital. That is the whole point behind absolute returns.


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