5 ETFs to watch this week

Exchange-traded funds that track cell phone companies and wireless service providers may offer some more excitement.

By TheStreet Staff Oct 18, 2010 11:21AM

Woman on cell phone © CorbisBy Don Dion, TheStreet


Here are some exchange-traded funds to play the diverse collection of companies stepping up to the earnings plate this week.


1. iShares Dow Jones U.S. Telecommunications Sector Index Fund (IYZ)


Cell phone companies and wireless services providers have been some of the most exciting areas of the market to watch recently as consumers become more reliant on their smart phones.


This week, industry giants Verizon (VZ) and AT&T (T) are scheduled to announce their quarterly earnings numbers. Together, the two companies command large percentages of most telecom-focused ETFs. For instance, in IYZ, Verizon and AT&T account for more than 27% of the fund's assets.

While it is possible to get involved in wars raging between industry competitors by investing in companies such as Google (GOOG) and Apple (AAPL), a fund like IYZ allows investors to take advantage of our increasing dependence on hand-held devices and the need to stay connected.

2. SPDR S&P Homebuilders ETF (XHB)


Although we are in the midst of earnings season, many investors remain more interested in macroeconomic data. This week, we will be treated to data points including the Fed's Beige Book and initial jobless claims data. XHB investors, however, will have their sights set on Tuesday when housing starts and building permits data are released.


The housing industry has consistently proven to be a tricky region of the market to tackle. Investors looking for exposure to real estate would be better off using a yield-bearing, REIT-focused ETF such as iShares Cohen & Steers Realty Majors Index Fund (ICF).


3. SPDR S&P Bank ETF (KBE)


Among the many earnings reports due out this week are a slew from the financial industry. The collection of companies scheduled to announce their quarterly performance ranges from Wall Street titans such as Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC) to smaller regional institutions such as Fifth Third Bancorp (FITB) and Hudson City (HCBK).


The best way to play the diverse collection of companies stepping up to the earnings plate this week is through KBE. Designed to track the financial sector as a whole, KBE exposes investors to banking institutions of all sizes.


As we look ahead to the near future, investors should use caution when gaining exposure to financials given the recent media and political firestorm surrounding foreclosures. The outcome of this situation remains uncertain and many of these firms could face a rough road ahead.


4. iShares Barclays 20+ Year Treasury Bond Fund (TLT)


Long-term treasuries took a heavy hit last week as investors shunned the protective nature of government-issued debt in favor of riskier asset classes. Talk of QE2 and a flailing U.S. dollar also added to the weakness.

TLT's downfall last week was steep and sharp, causing the fund to break below its 50-day moving average and return to levels last seen in the middle of September. As we look to this week, it will be interesting to see if the fund is in store for further losses.


I would advise investors to steer clear of TLT for now. In fact, risk-tolerant investors may find an inverse long-term treasury fund such as ProShares Short 20+ Year Treasury Fund (TBF) an attractive short-term play.


5. iShares Dow Jones U.S. Aerospace & Defense Index Fund (ITA)


Earnings reports from companies including Boeing (BA) and Lockheed Martin (LMT) will likely direct the performance of the broader aerospace and defense industry this week. Investors looking for a strong play on this section of the market should look to ITA. Within this fund, BA, LMT, account for nearly 15% of the fund's total portfolio.


ITA has seen a good run throughout the fall season. The fund appears on its way to revisit 2010 highs last seen in April.


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