Don Dion’s Weekly ETF Blog Wrap
Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog, anticipating which ETFs will be in play next.
Here are three of his blogs from the past week.
Are Homebuilders Near a Bottom?
Published 7/19/2010 1:19 PM EDT
In the three-month period ended July 16, the iShares Dow Jones US Home Construction ETF(ITB) fell a precipitous 21%. Much can be attributed to the expiration of the government stimulus program for new homebuilders. In the wake of this drop, homebuilders’ confidence in the housing market has fallen to the lowest level in more than a year, according to the National Association of Home Builders.
In its report today, the NAHB noted that its seasonally adjusted housing market index fell to 14 in July, making it the lowest level since March 2009. I have been watching the fall of ITB carefully in this blog, and have advised investors to stick with more well-rounded real estate ETFs like iShares Cohen & Steers Realty Majors ETF (ICF) and iShares Dow Jones US Real Estate ETF (IYR).
Is homebuilder sentiment, like consumer sentiment, enough to base the strength of a recovery on? Every time one of these reports comes out, investors are forced to reassess how they really feel about economic recovery in light of the new confidence numbers, etc.
Rates are at record lows, but low rates aren’t enough to get people to buy new homes. Here in Williamstown, Mass., where real estate signs used to be a rarity, you see a house for sale on every corner. Infinite stimulus certainly isn’t the solution, but what is? It seems like home prices will have to fall in order to get new buyers involved.
I think that we are near the bottom — at least everywhere outside of the “sand states” of Arizona, Florida, California, etc. And it might be about time to actually considering buying ITB. When things get bad enough, we’re usually due for a turnaround, and I believe that falling prices and low rates will eventually get people involved.
The state of the housing market is a sticky situation, and here’s what I’d recommend for most investors — longer-term diversified holdings like ICF and IYR. Unless you feel confident enough to call the bottom, avoid ITB — and the homebuilders — for a bit longer.
Don’t Bet Against the Net
Published 7/20/2010 4:54 PM EDT
Plenty of trends are up for debate this earnings season, but here’s one you can’t bet against: the power of the Internet. While I’ve been bullish on the First Trust Dow Jones Internet Index ETF(FDN) for some time now, news today only has me more convinced.
As readers of this blog will know, FDN tracks companies that derive at least 50% of revenue from Internet sales. As consumers tighten their purse strings, the Internet has become an even more powerful tool: Rather than rushing to the closest store to buy a product, consumers are comparison-shopping online. FDN tracks top search engines such as Google(GOOG) and Yahoo!(YHOO), along with bargain sites such as eBay(EBAY) and Priceline(PCLN).
Even with high unemployment, we can’t seem to fight the urge to be connected or own the latest gadget: Witness the rise of Facebook and the incredible success of Apple’s(AAPL) iPhone and other smartphones. Today, investors learned that Amazon’s(AMZN) Kindle e-books are outselling hardcover books. Amazon is the second-largest component in FDN’s portfolio.
FDN’s fourth-largest component, Yahoo!, missed revenue estimates today, but earnings were up a solid 51%. Growth in advertising bodes well for a recovering economy. With firms having to do more with less, the Internet is a great place for advertisers and consumers to connect.
iPhones and Kindles aren’t cheap, but cash-strapped consumers are still shelling out the bucks to stay connected and have the latest products. With the worst of the financial crisis behind us, there’s only one way for FDN to go in the long-haul: up.
Transports Should Chug Higher
Published 7/21/2010 2:40 PM EDT
While volatility and mixed earnings make blogging about short-term ETF trades a tough task, some results today from the airline industry give me an excuse to return to a longer-term theme I’ve been watching: transports.
On July 13, after CSX Corp.(CSX) steamrolled analyst expectations, I urged investors to “Hitch a Ride on Transports” with the iShares Dow Jones Transportation Average ETF(IYT). If you’re looking for well-balanced exposure to a broad range of transports, IYT is a strong pick — it tracks everything from railroads and delivery services to marine transportation and airlines.
While top component FedEx(FDX) has weighed on the fund’s performance, I believe that strong earnings from other sector giants will help give IYT a strong shorter-term boost. UPS(UPS), also an IYT holding, is scheduled to report results Thursday, and earnings estimates have been creeping up. Positive results from Delta Airlines(DAL) and U.S. Airways(LCC) have helped to paint a brighter picture for the sector as well.
With earnings in the transports sector largely exceeding expectations, upcoming reports from IYT components like Continental Airlines(CAL), Union Pacific(UNP) and Southwest Airlines(LUV) should help IYT push higher.
I continue to think that a slow, steady economic recovery will continue to fuel transports and make IYT an attractive option in both the medium and longer term.
