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ETF News And Commentary

With global markets reeling, many investors are staying laser-focused on American securities. These have held up pretty well so far in 2013, as the S&P 500 is up double digits while the dollar is in the green against a global basket of currencies as well.

And with many data points coming in strong for the U.S. market, there is no reason to think that this trend cannot continue in the second half of the year as well.  After all, stocks have recovered nearly all of their Fed-induced losses, while data on the manufacturing, housing, and consumer fronts have all come in ahead of expectations in recent weeks (read 3 ETFs for Your Portfolio This Summer).

Global markets on the other hand, seem beset by a variety of woes that could continue to drag down their securities in the second half of 2013. Many stocks in these nations have failed to recoup their own Fed-related losses, while political issues threaten nations in the EU as well as developing ones across the globe.

In this type of environment, a focus on All-American ETFs could be a great way to go. For investors seeking to apply this approach to their portfolios, we have highlighted three ETFs below which could provide exposure with a domestic tilt, an ideal strategy in times of global distress:  

SPDR S&P Retail ETF (XRT - ETF report)

The resiliency of the American consumer is legendary at this point, with consumer spending continuing to grow at a solid clip. And with home prices surging, many will likely have the confidence to spend even more this year.

This is further confirmed by a few of the recent readings on the consumer front. The sentiment figures hit 84.1, beating out the consensus of 83.0. Plus, the expectations also rose by two points when compared to May, suggesting a bullish outlook for this space as well (see 3 Top Ranked Consumer ETFs to Buy Now).

One way to play this with ETFs is via XRT, an extremely popular fund that follows the S&P Retail Select Industry Index. Assets under management for this product are over $1 billion while volume comes in the several million share mark on a regular basis.

The product is also cheap, charging investors just 35 basis points a year in fees, despite using an equal weight methodology on just less than 100 firms. This means that no single company dominates the risk return profile of XRT, and that large caps account for just under 25% of the total portfolio.

iShares Dow Jones US Regional Bank ETF (IAT - ETF report)

Banks could be well-positioned to be a winner in the second half as well. That is because these securities could benefit from a steeper yield curve as they can make more money off a wider spread between long and short term rates.

However, not every bank will benefit equally from this situation, as many have global operations that could be impacted by international woes. For this reason, a focus on regional banks—which zero in on domestic clients—could be better picks at this time.

One way to target regional banks is with iShares’ IAT, an ETF that follows the Dow Jones US Select Regional Banks Index. This produces a fund that holds about 60 companies in its basket, charging a 46 basis point expense ratio per year (also see A Steeper Yield Curve Makes These ETFs Winners).

The ETF is somewhat concentrated though, as USB and PNC take up nearly 30% of the fund, followed by a 7% allocation to BBT. Still, the ETF has been a solid performer despite the overall turmoil, and its banks as represented by the major regional banks Zacks Industry has an industry rank in the top 25% suggesting it is well positioned for earnings season.

PowerShares DB US Dollar Bullish Fund (UUP - ETF report)

If global markets continue to struggle, investors will likely put their capital to work in the world’s safe haven, the U.S. This could be especially true in emerging markets where political strife is rocking nations like Brazil and Egypt, forcing many to reevaluate their holdings in these volatile nations, and boost prospects for the U.S. dollar.

Beyond that, a number of other nations are engaged in easing campaigns, weakening their currencies against the dollar. Add these two together and you have a pretty bullish case for the greenback in the second half of 2013.

Investors can go long in the dollar against a basket of global currencies by buying up UUP from PowerShares. This ETF gives exposure to the dollar against a variety of developed market currencies including the euro, yen, British pound, Canadian dollar, Swedish krona, and the Swiss franc (read 3 Currency ETFs Hit Hard By Taper Talk).

The fund is a bit pricey though, as expenses come in at 80 basis points a year, though it should be noted that volume is pretty solid at just over one million shares a day. While this ETF will likely be much less volatile than its peers on the list, it remains a solid choice to play off some of the global factors that are afflicting many of the dollar’s main competitors.

Bottom Line

Although there has been some volatility in the U.S. market lately, it pales in comparison to what investors have seen in stocks around the globe. Securities in foreign nations—be they developed or emerging—have experienced heavy losses and may be worth avoiding for the time being.

Given this reality, investors should stay focused on the domestic market, playing sectors that are dependent on the U.S. for their performance. These securities could be well positioned in the second half, and may outperform their global peers in the process once more.

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