5 ETFs to buy this week

Gold and mining lead this list of top exchange-traded funds.

By InvestorPlace Oct 11, 2010 9:33AM

By Jamie Dlugosh, InvestorPlace.com


Exchange-traded fund investors, we are now 2 for 2. Our weekly Top ETF buys from last week beat the market by a wide margin as stocks rallied nicely.

 

The selection of five picks, equally weighted, posted a gain of 2.6% for the week versus a gain of only 1.76% for the S&P 500.

 

Leading the way were commodities. The gold exchange-traded fund performed well, but the fund holding precious metal mining stocks fared even better.


As I mentioned two weeks ago, gold mining stocks had been lagging the rally in precious-metals prices. The market is simply re-pricing that little inefficiency over the past two weeks.

I mentioned to a former money management client of mine that gold was headed to $2,000. The dynamic of falling currency values combined with a "do anything at whatever cost" Federal Reserve put gold in a can't-lose position.

 

The rally in gold is far from over.

 

Look no further than Friday’s jobs report. A loss of jobs in the period merely reinforced the idea that quantitative easing by the central bank will come sooner rather than later.

 

That easing is bullish for yellow bullion.

 

Turning our attention to this week, investors will focus on earnings. Third-quarter results began last week with a solid report from aluminum giant Alcoa (AA). The company posted a profit of $.09 versus an estimate of $.05.

I expect more of the beat-the-numbers game in the weeks leading up to the election. The environment will be very supportive of stocks.

 

With the S&P 500 now up nearly 5%, hedge fund mangers will be anxiously joining the fray as they look to juice returns that so far in 2010 have fallen flat.

 

On the economic data front, we get readings on producer and consumer prices. These key inflationary numbers will help the central bank justify its next policy move.


Related Article: 9 Materials Stocks with Big Dividends

 

Whatever the number, gold continues its run.

 

I’m not inclined to make any changes to my five top ETF buys for this week. They are as follows:


SPDR Gold Shares (GLD) I like for gold to make a straight bee line to $2,000. No need to lock in profits until we hit that point. Only hawkish statements from the Federal Reserve will slow us down. Even then, statements and actions are two completely different things. Stay long and strong on your gold position.

 

iShares Russell 2000 (IWM) Hedge fund managers looking to goose returns will surely make big bets on small stocks. Having an allocation to the smaller players will provide accelerated gains in a rising market. We may slow down a bit this week, but I still want exposure to the Russell 2000, an index of smaller stocks, until at least the election.

 

WisdomTree Large Cap Dividend (DLN) Dividend stocks are all the rage as the treasury market continues its own rally. Investors that depend on income have no choice, but to consider dividend stocks. I expect dividend stocks to move higher from here.

 

SPDR S&P Metals and Mining (XME) High prices in metal markets are here to stay. The exchange traded fund that owns mining stocks will outperform the rest of the market. Enjoy the ride.

 

SPDR Dow Jones Industrial Average (DIA) This fund is a bit of a hedge. If there is a correction this week the Dow should hold up relatively well. If we go up, we will share in the gains.

 

I would buy equal positions of all five funds mentioned here for the week to stay ahead of the market.


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