ETFs to watch this week

It's a big earnings week for these ETFs.

By TheStreet Staff Oct 24, 2011 9:56AM

By Andrea Tse, TheStreetTheStreet


1. iShares Dow Jones U.S. Energy Sector Index Fund (IYE)

 

Major oil companies will be in focus this week, pushing IYE and other large-cap energy ETFs into the spotlight. Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP) are among the companies slated to report their earnings. This trio accounts for over 40% of the fund's total portfolio.

 

IYE has seen a strong run up in recent weeks as EU-related concerns have begun to abate. This strength has helped it recover all of the losses it suffered during the September selloff.

 

The days ahead will be crucial for IYE. In the event that confidence returns, the fund could be in for a lift. However, given its top heavy nature any exposure to IYE should be kept small.

 

2. iShares MSCI EMU Index Fund (EZU)

 

Rumors were in abundance last week as market commentators attempted to learn more about the potential actions being taken to reign in the ongoing EU crisis.

 

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Much of the focus over the past few weeks has been on France and Germany. As leaders from these two nations continue to sort out a plan, funds like EZU will be interesting to watch.

 

Even in the event that an agreement is reached, I would encourage even the most aggressive, risk-tolerant investors to tread carefully in this region. Sentiment towards these nations has and will likely continue to shift from headline to headline. Those with heavy exposure to a fund like EZU will be vulnerable to volatility.

 

3. Materials Select Sector SPDR (XLB)

 

The earnings season is packed this week as companies from across the market spectrum to report their earnings and guidance. Another sector that will be heavily in play will be materials.

 

Industry headliners and top XLB constituents including DuPont (DU), Dow Chemicals (DOW), Praxair (PX), Newmont Mining (NEM) and Ecolab (ECL) will all be on tap. These firms represent nearly one-third of the fund's total portfolio.

 

While earnings will play a major role in directing XLB's performance in the days ahead, like other ETFs linked to market-correlated sectors, investors will want to keep a close watch on what is happening at a macro level. Reignited global economic fears could be enough to offset any strength from these reporters.

 

4. iShares Cohen & Steers Realty Majors Index Fund (ICF)

 

Following the release of strong new housing starts numbers and an optimistic report from the National Association of Homebuilders, it has appears as though the troubles surrounding the real estate industry have dissipated to a small degree.

 

This week, investors can look forward to learning more about the housing market as new home sales and pending home sales numbers are released on Wednesday and Thursday respectively.

 

Despite the hints of strength, the homebuilding sector is not one I would encourage conservative investors to dive into at this time. While the recent good news has helped funds like the iShares Dow Jones U.S. Home Construction Index Fund (ITB) and SPDR S&P Homebuilder ETF (XHB) gain some ground, these products have struggled to find footing over the past year.

 

I explained last week that a better long-term bet on real estate can likely be found in a fund like ICF and the iShares NAREIT Residential Plus Capped Index Fund (REZ). Multifamily housing continues to hold up markedly well compared to single family residences. Both ICF and REZ can provide real estate-hungry investors with comfortable exposure to this slice of the industry.

 

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

 

Investors have already watched a number of players from across the aerospace industry step up to report earnings. So far, the results have been impressive. Last week, both United Technologies (UTX) and Honeywell (HON) not only beat estimates but also lifted their respective full-year outlooks.

 

On Wednesday, investors with exposure to ITA will want to keep a close watch on the earnings calendar. Industry leaders, including Boeing (BA), Lockheed Martin (LMT), Northrop Grumman (NOC) and General Dynamics (GD) are all slated to step up.

Later in the week additional ITA top 10 holdings including Raytheon (RTN), Precision Castparts (PCP) and Rockwell Collins (COL) will report earnings. It will be interesting to see if this batch of companies can keep the party going.

 

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