Dion Money Management Blog   Money Management for Retirees and Their Families

There is no doubt that the investing environment we have had to cope with over the past few months has been far from ideal.

With ample amounts of uncertainty pestering the markets, many investors have opted for the safety and security that comes with owning bonds.

Now, as a money manager focused on growing and preserving the wealth of my clients for the long term, I believe that fixed income is an essential element of any well diversified portfolio. However, there are a number of different ways to play the bond market which can appeal to different types of investors.

For instance, the most conservative type of investors may desire holdings comprised of U.S. Treasuries. Generally considered risk-free, there is near zero chance that the government-issued debt underlying funds such as the iShares Barclays 20+ Year Treasury Bond Fund (TLT) will be defaulted on. This type of security, however, does not come without sacrifice. In this case, it comes in the form of lower yield. TLT currently pays out 3.75%.

While stable, a fund like TLT may not sit well with risk tolerant investors who are seeking larger returns.

For this type of investor, I suggest going with an ETF or mutual fund designed to track the high-yielding debt markets.

For a long while I have used products such as the iShares $ iBoxx High Yield Corporate Debt Bond Fund (HYG) and the Federated High-Income Bond Fund (FHIIX) to tap into below investment grade corporate debt. Whereas TLT yields less than 4%, HYG and FHIIX pay out approximately 9% and 8% respectively.

HYG tracks a passive index comprised of over 350 U.S. dollar-denominated corporate debt securities rated below investment grade.

Similar to HYG, FHIIX tracks a diverse basket of below-investment grade bonds. Unlike the ETF option, FHIIX is actively managed, with a 35% turnover.

Being an actively managed mutual fund, FHIIX carries a higher expense ratio than HYG. However, throughout 2010, having a manager has paid off, resulting in the mutual fund’s outperformance versus its ETF competitor.

Like TLT, gaining exposure to the higher yielding bonds underlying HYG and FHIIX requires a tradeoff. In this case, investors are forced to give up some safety. Companies whose debt is considered below investment grade are typically viewed as more prone to default. While for some, this may raise red flags, I am not overly fearful. Rather, I see corporate debt as a promising endeavor.

As evidenced by this most recent earnings season, corporations are befitting from factors including strong balance sheets and rising profits. Additionally, despite the general concerns regarding the broad economic picture defaults have largely been absent. Looking ahead, I am confident that these factors will keep corporate bonds buoyed into the foreseeable future.

HYG and FHIIX appeal to different types of investors. However, in the end they both represent a popular destination for those seeking a balance of protection and payoff in today’s tricky market conditions.

Disclaimer

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

SPDR S&P Metals & Mining ETF (XME) 2.5%
Silver miner Hecla Mining (HL) and coal producer Alpha Natural Resources (ANR) are powering XME higher today, jumping nearly 5% and over 6% respectively in early afternoon trading.

The metals and mining ETF has gotten bashed around recently as investors digest multiple servings of dismal economic news. While today marks a strong day for XME, investors should remain cautious towards this industry.

Despite the strength from global miners, copper prices are taking a hit with iPath Dow Jones UBS Copper Total Return Subindex ETN (JJC) falling over 1%.

Market Vectors Junior Gold Miners ETF (GDXJ) 2.3%
Silver and gold miners are leading the precious metals industry to gains, helping to lift GDXJ, Global X Silver Miners ETF (SIL) and Market Vectors Gold Miners ETF (GDX) higher.

Investors fearful of the abundance of uncertainty plaguing the market may find funds linked to precious metals as a welcomed source of stability and comfort.

Market Vectors Vietnam ETF (VNM) 2.2%
After tapping new all-time lows at the end of last week, the Vietnam ETF has staged an impressive rally, recovering nearly all of the previous week’s losses.

Vietnam, like other countries considered frontier markets, tend to move independent of other members of the global economy making funds such as VNM attractive to risk tolerant investors.

The Thai markets are soaring higher today as well, lifting the iShares MSCI Thailand Investable Market Index Fund (THD) .

Losers

United States Oil Fund (USO) -1.9%
Crude oil prices took a knock today, leading USO to heavy losses.

Meanwhile, natural gas prices are seeing a continuation of Monday’s gains. After treading in negative territory early on in the day, the United States Natural Gas Fund (UNG) is poking into positive ground.

Weather continues to play a big part in directing fuel prices. While the East Coast of the U.S. prepares for hurricane Earl, forecasters are predicting that the storm will avoid natural gas and oil production sites in the Gulf of Mexico. USO and UNG may be in for rocky ride over the next few days.

ProShares UltraShort 20+ Year Treasury Bond ETF (TBT) -1.8%
The markets are scoring gains today but investors are still seeking safety and piling into long term U.S. Treasuries. While TBT is taking a shot across the bow, the iShares Barclays 20+ Year Treasury Bond Fund (TLT) is treading higher, gaining nearly 0.9% in early afternoon trading.

iShares MSCI Japan Index Fund (EWJ) -0.5%
The yen is showing that it still has some fuel left in its tank, powering back to 15-year highs versus the U.S. dollar. In response to the currency’s assault higher, Japan’s equity markets are taking a heavy knock.

Although the weight of the currency has weighed on Japanese stocks, EWJ continues to outperform the broad Nikkei Index.

While the recent onslaught of negative economic data hitting the tape has put bearishness in vogue, it is hard to ignore other factors which paint a more optimistic picture.

For instance, in light of earnings season and Monday’s personal spending report, the consumer remains an intriguing area of the market to watch.

The resilience of the consumer has been one of the bigger stories to surface from the most recent earnings season. As evidenced by strong numbers from players including Wal-Mart (WMT) , Home Depot (HD) and Chico’s (CHS) , shoppers are still drawn to spend, whether it is at the mall or online.

Strength from this session of earnings reports will provide my retail ETF pick, SPDR S&P Retail ETF (XRT) , with an additional boost heading into the near future.

Interestingly, despite the generally positive tone from retail, not all facets of this industry are sources of strength. Rather, the brightest areas within the retail industry remain at the upper- and lower-ends of the spectrum.

Meanwhile, the teen retailers, which fall between these two extremes, have largely been a mixed bag; some have followed Hot Topic (HOTT) and JCrew (JCG) and missed Wall Street expectations or cut out outlooks while others such as Urban Outfitters (URBN) have blown away analyst predictions.

Due to the interesting split that has developed across the retail landscape, attempting to pick out individual winners from the group will prove to be a difficult task looking to the weeks and months ahead.

Therefore, rather than fishing around, attempting to separate out the outperformers from the laggards, a more effective way of navigating the consumer’s mind and pocketbook would be through the use of a broad, equity backed ETF. In this case, the XRT remains my top choice for playing this industry.

XRT’s index runs the retail gamut, playing all types of consumers. Comprising the ETF are discount retailers such as Wal-Mart, upper end luxury retailers such as Tiffany (TIF) , and everything in between.

Within the realm of retail ETFs, XRT is not alone, however. Rather, one major challenger to this fund is the Retail HOLDRs (RTH) .

Like XRT, this fund attempts to track the spending habits of consumers by looking at a number of top names in the retail industry. While many of the names are similar across XRT and RTH, the HOLDR fund’s exposure to individual positions is noticeably different.

XRT tracks a basket of 65 different positions. With its top ten holdings representing less than 20% of the fund’s total assets, this fund has the benefit of tracking a widely distributed portfolio.

RTH, on the other hand, is noticeably more heavily weighted towards its top holdings. Boasting an index comprised of 18 individual holdings, this fund dedicates 20% of its portfolio to Wal-Mart alone.

An additional 13% of the RTH is dedicated to Home Depot (HD) .

Year to date, XRT has managed to gain over 4%, handedly beating out RTH, which has dipped 4%.

While I am confident in the prospects for the broad retail industry going forward, I am also aware that the going may get rocky. Therefore, I feel that spreading my assets adequately across a broad spectrum of companies is the most effective way to play the industry going forward. In this case, XRT is just the tool for the job.

Disclaimer

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

United States Natural Gas Fund (UNG) 2.4%
Natural gas prices are seeing a lift today, pulling UNG higher. Last week, this troubled fund managed to carve out new all-time lows as investors steered clear of energy for fear of faltering global demand.

Natural gas is still attractive but remains tricky to play via the futures-backed UNG. First Trust ISE-Revere Natural Gas Index ETF (FCG) is a far safer bet. Today, FCG has traded in unchanged territory.

iPath Dow Jones-UBS Grains Total Return Subindex ETN (JJG) 0.9%
Poor weather conditions are weighing on yield predictions in the grain industry, causing futures prices to rally. JJG, which is designed to track the prices of corn, wheat, and soybeans, is a major beneficiary, earning a spot among the winners heading into the start of the week.

Corn, in particular, is rallying, touching a 14-month high.

iShares Barclays 20+ Year Treasury Bond Fund (TLT) 1.4%
Investors are opting for defense as they prepare for another flood of economic data heading into the start of this week. In response, long term Treasuries are once again seeing a jump. Meanwhile, ProShares UltraShort 20+ Year Treasury ETF (TBT) has fallen nearly 3%.

Losers

iShares MSCI Sweden Index Fund (EWD) -2.8%
Europe remains an area of concern as debt-laden nations struggle to get their budgets in check. Today, Italy is the worst performing of the PIIGS nations, with the iShares MSCI Italy Index Fund (EWI) taking the biggest knock, falling 2.1%.

Sweden is running into trouble of its own on Monday after news that HQ Bank, a Swedish investment bank, was entering liquidation. This will weigh on the nation’s financial industry which at more than 27%, represents the largest sector slice of EWD’s portfolio.

Market Vectors Indonesia ETF (IDX) -2.5%
The Indonesian marketplace is retreating Monday after ending last week on a high note. Looking ahead, investors may want to be cautious of Indonesia. Since Aug 29, a volcano has been erupting, threatening the nation’s population. As with the volcanic eruption which threatened Europe earlier this year, investors may be in for a rocky ride.

SPDR KBW Regional Banking ETF (KRE) -2.2%
The regional banking industry is struggling today, sending KRE and iShares Dow Jones U.S. Regional Banking Index Fund (IAT) lower.

Although it is taking a knock today, KRE is my favorite choice for playing regional banks. IAT is heavily influenced by regional banks such as US Bancorp (USB) and PNC Financial (PNC) , which command 17% and 11% of the fund respectively. KRE, on the other hand is far less top-heavy. The fund’s top 10 positions represent slightly more than a quarter of its total portfolio.

Disclaimer

ETF investors will carefully watching to see what steps will be taken to deal with inflationary problems in Vietnam and the troublesome rise in the yen in Japan.

Market Vectors Vietnam ETF (VNM)
I have often looked to the Vietnam as a promising frontier market. However, recently, the nation has faced pressure as its government takes bold steps in an effort to rein in its growing trade deficit while at the same time preventing against the threat of inflation.

In response to the actions taken by the nation’s leaders the Vietnam ETF was pounded throughout most of last week, at one point testing new all time lows.

Disclaimer

Looking towards the next few days, investors interested in Vietnam will want to keep a close watch to see if VNM can recover some of the ground lost recently.

CurrencyShares Japanese Yen Trust (FXY)
The recent run of dismal economic news has thrust the Japanese yen into the spotlight. In response to concerns regarding the strength of the global recovery, this defensive currency has powered higher, visiting 15-year highs.

While good for the FXY, the staggering ascension of the yen has weighed on Japan’s markets, causing the Nikkei to take a shot across the bow. In response, Prime Minister Naoto Kan has offered up tough rhetoric, warning that decisive action would be taken to cool the yen’s strength when it becomes necessary.

Despite the strong words, the yen may have some more fuel left in its tank this week as investors prepare to digest another round of economic data.

Market Vectors Gaming ETF (BJK)
As evidenced by the recent performance of BJK, sin is in. Despite the growing concerns about the strength of the global economic recovery, the gaming industry appears to be holding strong, with this fund handedly beating out the performance of the broad S&P 500 throughout 2010.

With top holdings such as Wynn Resorts (WYNN) and Las Vegas Sands (LVS) , BJK not only exposes investors to the craps tables in Las Vegas but also internationally hot gaming regions such as Macau.

iShares COMEX Gold Trust (IAU)
Throughout the recent bout of economic turmoil, gold has staged an impressive comeback, approaching a nominal all-time high. Aside from IAU, SPDR Gold Trust (GLD) , Market Vectors Gold Miners ETF (GDX) and Market Vectors Junior Gold Miners ETF (GDXJ) will also be funds to watch as investors pile back into the yellow metal.

Silver has shown promise as well, sending iShares Silver Trust (SLV) and Global X Silver Miners ETF (SIL) higher. While heavily used in an industrial setting, like gold, silver will benefitting from the shaky outlook towards the global economic recovery.

iShares iBoxx $ High Yield Corporate Bond Fund (HYG)
Bonds and other yield bearing asset classes are in vogue as investors seek out any sort of stable payout to defend against today’s trying economic climate.

Investors looking to add some additional risk to their portfolio may find HYG an attractive option in coming days. Although this fund’s index is comprised of companies whose debt is considered below investment grade, thanks to the general strength indicated by this most recent earnings season I don’t foresee much in the way of defaults in the coming week.

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.

Gaming ETF on a Roll
Published 8/27/2010 7:50 a.m. EDT
Casino vacations and gambling are typically more popular in booming economic times, but worries about a global slowdown in economic recovery have surprisingly not weighed on Market Vectors Gaming ETF (BJK) : Year to date, BJK is up by about 8%, whereas the S&P 500 is down by roughly 5%. The fund, despite its somewhat low daily volume, thus represents an interesting way for investors to gain exposure to a unique slice of the consumer discretionary goods and services market.

I credit part of the success of this fund to its globally diversified exposure and, in particular, to its exposure to the casino-filled city of Macau. The city, which has emerged on China’s doorstep as a rival to Las Vegas, saw its gambling revenue having increased by 70% in July from a year earlier. Fittingly, casino operators there are posting strong earnings for the first half of this year.

For instance, Wynn Macau, a division of Wynn Resorts (WYNN) , reported last Friday that its first-half profit had more than doubled. Meanwhile, Sands China, the Macau division of Las Vegas Sands (LVS) , reported yesterday that in the first half of this year, net profit increased to $250.5 million from $58.3 million a year earlier.

BJK’s total exposure to Wynn Macau, Sands China and their respective parent companies, alone, is 22.46% — and it has further exposure to Macau via holdings of other companies with operations in the region. Exposure to the U.S. and Las Vegas is still substantial at almost one-third of holdings, meaning investors should have confidence in both hemispheres before diving in.

BJK has thus shown surprising endurance through this year’s concerns about stalling worldwide economic growth — and, indeed, expectations point to a slowdown in most economies after the relatively fast rates of growth seen earlier this year. That may be the case but, barring a double-dip recession, funds that rely on discretionary consumerism such as BJK should continue to surprise.

A Play Against the Treasuries
Published 8/25/2010 11:15 a.m. EDT
While I’ve always discouraged readers from buying short leveraged ETFs for those who are not sophisticated investors — as well as from holding them longer than a single session ( due to tracking error ) — there’s one play that might be worth the risk: the ProShares Short 20+ Year Treasury (TBF) .

As I discussed last week , the iShares Barclays 20+ Year Treasury Bond ETF (TLT) has been spiking lately as investors have fled equity markets for the “relative safety” of secured government debt. Whether this has created a bubble is for others to argue but, regardless, it’s undeniable that TLT has attracted a lot of attention.

I don’t believe this situation — that is, money pouring into fixed income and treasuries — is sustainable. In fact, I’m willing to bet we’ll see a reversal in the next two to three months, at which point we’ll be talking about all of the money exiting these low-yielding treasuries.

So, if you are indeed a sophisticated investor looking to bet on the reversal of the TLT trend over the medium term, I’d recommend TBF despite my misgivings about leveraged ETFs. Make sure, however, that you keep an eye on your portfolio. The TBF — as with the “ultra” version, the ProShares UltraShort 20+ Year Treasury (TBT) — is intended to track the inverse of 20+ year treasuries on a daily basis. While this will cause some compounding error over time, TBF will see less disconnection since it’s only an “inverse” and not a double-short.

The other option, of course, is to avoid treasuries altogether. I believe we’ll be seeing a reversal in the path of TLT, however, and it could be worth finding a way to bet on it.

Utilities’ Utility
Published 8/23/2010 12:43 p.m. EDT
As the market made an abrupt descent this morning during trading, one group of ETFs glowed green on my monitor: utilities. Broadening my time frame a bit, I discovered that these funds have been on a bit of a tear in the last few months, with the Utilities Select Sector SPDR (XLU) and the iShares Dow Jones US Utilities (IDU) gaining 8.15% and 7.57%, respectively, during the three-month period ended last Friday.

Investors may view utilities as a simple “defensive” play, but a lot of things have to go right for this thesis to be profitable. If you’re bullish on utilities and own a utilities ETF, you probably think that infrastructure will require substantial investment, utilities firms will continue to be efficient capital markets, natural gas prices will stabilize or go up, interest rates will not dramatically increase and electricity demand will grow.

That’s a big list of considerations, but they’re good things to think about if you want to add a utilities ETF for the long term. All three of the major cap-weighted utilities ETFs — XLU, IDU, and Vanguard Utilities (VPU) — work well as long-term picks. If you’re simply an investor looking to make a short-term trade, you’re better off picking an ETF with characteristics best suited for such a time frame.

Of the cap-weighted ETFs, XLU is the most liquid by far. XLU also has the lowest fees out of any fund in the bunch, so this ETF is the best if you’re looking for short-term exposure to the utilities sector.

I like utilities as a long-term play, but I can see how it’s tempting to chase them today. “Defensive” ETFs generally get a lot of attention in volatile markets. No matter what your time frame is, however, just make sure you pick the right fund.

Disclaimer

Here are this week’s ETF winners and losers.

Winners

iShares Silver Trust (SLV) 6.3%
Silver prices rallied this week, powering the physically backed SLV to strong gains this week. Silver is used extensively in the industrial world, but investors also turn to it sometimes as a safe haven, like gold.

Speaking of gold, Market Vectors Gold Miners ETF (GDX) managed to score gains this week as well.

ETFS Physical Palladium Shares (PALL) 6.1%
In the world of precious metals, palladium was another big winner, with ETFS Physical Palladium Shares (PALL) pocketing strong gains. Looking to next week, investors looking to invest in this white metal will want to keep a close watch on auto sales numbers scheduled to be released. Both palladium and platinum are used in the production of catalytic converters. Investors can track price movements in platinum using the ETFS Physical Platinum Shares (PPLT) .

iShares MSCI Thailand Investable Market Index Fund (THD) 1.6%
After suffering through a weak start to the week, the Thailand ETF staged an impressive comeback, leading it back into positive territory by Friday. This week marks the second in a row in which THD has landed on my weekly list of winners.

Throughout this summer, this Southeast Asian nation-focused ETF’s rally has been impressive, resulting in a new all-time high.

Losers

United States Natural Gas Fund (UNG) -10.4%
Natural gas prices struggled every day this week in light of concerns regarding the broad economy and a weak storage report form the Energy Information Administration. The fuel’s poor performance placed pressure on the futures-backed UNG, which managed to carve out new all-time lows.

This week, investors were treated to the launch of Alerian MLP ETF (AMLP) . Although there are a number of ETNs available which track MLPs, the launch of AMLP marks the first time investors can tap into this attractive asset class using an ETF.

iShares MSCI Mexico Index Fund (EWW) -3.6%
The Mexican markets got knocked this week, pushing EWW to new August lows. EWW is noticeably top-heavy with Carlos Slim’s telecom conglomerate America Movil (AMX) representing over a quarter of the fund’s assets. Because of this heavy exposure, AMX’s performance can typically be seen as the driving factor for the fund’s movements. As expected, this firm got hit hard.

Fellow top holding Cemex (CX) also struggled this week in light of poor U.S. housing data.

SPDR S&P Metals & Mining ETF (XME) -2.7%
For the most part, pain was the story for companies involved in the metals and mining industries this week. Although they managed to recover a good portion of their losses thanks to Friday’s rally, XME and Market Vectors Steel ETF (SLX) still ended the week on a sour note.

Steel and other basic materials will likely be tricky areas of the market to navigate in coming weeks as investors remain wary and confidence takes a backseat to fear.

Disclaimer

Gold prices traded tentatively higher Friday as investors debated between the yellow metal and stocks as the Dow Jones Industrial Average rallied by triple digits during the day and the second-quarter gross domestic product reading came in better than expected.

Gold for December delivery closed up 20 cents to $1,237.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Friday has traded as high as $1,244.20 and as low as $1,233.50. The U.S. dollar index was up 0.04% at $82.93 while the euro was up slightly at $1.27 vs. the dollar. The spot gold price Friday was down slightly, according to Kitco’s gold index.

Gold prices spent the day in limbo as investors vacilated between stocks and gold. Second-quarter growth domestic product in the U.S. was revised down from 2.4% to 1.6% signaling a feeble U.S. recovery. Analysts were looking for a downward revision of 1.4% so the result was bad but not horrible. The news came on top of a struggling stock market, which closed Thursday below the psychologically important 10,000 level for the first time since July 6.

Gold prices had also been waiting for Federal Reserve Chairman Ben Bernanke’s speech at 10 a.m. EDT, which kicked off a two-day meeting of central bank leaders in Jackson Hole, Wyo. This was the first time Bernanke has spoken since he called the economic outlook “unusually uncertain.” Bernanke confirmed worries that the U.S. economy was in trouble by saying the pace of recovery has been too slow and joblessness too high. Investors had been hoping for concrete signs of further money printing and quantitative easing in light of continuing disappointing economic data.

Two days after the Federal Reserve announced it would reinvest proceeds from maturing mortgage-backed securities into long-term government bonds in mid-August, gold prices surged double digits while the Dow sunk 3.5%. But for now Bernanke’s assurance that the Fed will provide additional stimulus to the economy, if needed, calmed investors and limited gold’s appeal as a safe haven asset.

Pumping more liquidity into the market could be seen as a sign of desperation and raise the threat of inflation. Although inflation is currently low — the core consumer price index rose just 0.1% in July — future money printing will debase the U.S. dollar and make gold even more appealing as a form of currency.

Jeffrey Christian, managing director of the CPM group, says he doesn’t “think Ben Bernanke will be able to say anything that will appease the investment community” for the long term.

With a dissatisfied Wall Street and gold prices up $9 for the week, Christian expects even more strength from the precious metal. “The fact that gold has gotten over $1,240 and is showing some stability there makes us think that the price could go up further and possibly even to $1,260 or so next week going into the Labor Day weekend,” he said.

Don Dion, portfolio manager of ETF Action, said on RealMoney Silver that “whether you’re worried about inflation, deflation or an economic apocalypse, there’s a reason to have exposure to a physically backed fund.” Dion likes the SPDR Gold Shares (GLD) , the gold exchange-traded fund, as do other investors. The GLD currently holds 1,297.84 tons. Shares were trading at $120.76.

Silver prices settled up 5 cents at $19.07 while copper closed 5 cents higher at $3.36. Silver has popped more than 5% this week. A lack of fundamental reasons have some analysts speculating that a big buyer has entered the market.

Gold mining stocks , a risky but profitable way to buy gold , were mixed. Freeport McMoRan Copper & Gold (FCX) was surging 5.93% to $71.09 while small cap NovaGold (NG) was adding 5.42% to $7. Other gold stocks New Gold (NGD) and Gold Fields (GFI) were trading at $6.18 and $14.20, respectively.

Disclaimer

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

iShares MSCI Thailand Investable Market Index Fund (THD) 3.2%
A number of Southeast Asian nation-focused ETFs are churning out strong gains heading into the end of this week. THD and the Market Vectors Vietnam ETF (VNM) are two of the biggest winners.

VNM got pounded throughout most of this week as the Vietnamese government continued to take steps to ease the nation’s trade deficit while, at the same time, avoiding crippling inflation.

SPDR S&P Metals & Mining ETF (XME) 3.2%
After a week of choppy trading, the bulls managed to score some gains during early Friday trading. Metal prices typically outperform in times of market confidence. Therefore, today’s gains are sitting well with the companies underlying XME.

iShares MSCI Brazil Index Fund (EWZ) 3.1%
While Southeast Asia may be leading the way today, Latin America is another region which is showing promise heading into the weekend. EWZ, which is designed to track the largest members of the Brazilian equity markets such as the iron ore goliath, Vale and the energy firm, Petroleo Brasileiro (PBR) is pocketing strong gains.

Losers

iPath S&P 500 VIX Short Term Futures ETN (VXX) -4.6%
Although the revision was lower, the second quarter GDP number released early Friday was higher than what was expected and provided investors with some welcomed relief. Volatility remains present in today’s markets and should be prepared for accordingly.

Rather than trying to chase market uncertainty with VXX and other VIX-focused ETFs, investors should ready their portfolios with a collection of funds aimed at tracking gold, bonds, and dividend- paying equities.

United States Natural Gas Fund (UNG) -2.8%
Throughout this week natural gas prices and the UNG have gotten pounded as investors remain skeptical about the strength of the global economic recovery. The pressure has been enough to push UNG to brand new all-time lows.

I advise investors to avoid using UNG as a way to play natural gas. This fund’s decent has been dramatic and still doesn’t show signs of letting up.

iShares Barclays 20+ Year Treasury Bond Fund (TLT) -2.2%
Long-term bonds continue to be a closely watched area of the market as investors seek protection against the threat of market turmoil. On Friday, TLT took a break from its upward ascension which has brought the fund back towards levels last seen at the start of 2009.

As TLT cools off, ProShares UltraShort 20+ Year Treasury Bond ETF (TBT) is heating up heading into the weekend, jumping 4.5%.

Disclaimer

The exchange rate between the yen and the U.S. dollar is a big force moving markets in Japan these days and investors looking at ETFs for the country, such as iShares MSCI Japan (EWJ) , should plan accordingly.

As the yen pushes up against 15-year highs versus the U.S. dollar, the nation’s markets are being driven downward on the concern that a strong yen will hurt exports. The most recent statistics would suggest that this fear may be founded.

Although in July exports increased by 23.5% compared to a year ago, this was slower than the 27.7% increase in June.

In Japan’s economic cycle, a boost in exports will fuel domestic consumption, meaning that a stall in exports could lead to a stall in spending at home. This helps to explain the fixation in Japanese markets right now with the yen’s strength.

Therefore at this point, before shaping their investment strategy, investors looking at Japan-focused ETFs need to first ask themselves whether they believe the yen will continue to rise.

Despite the yen’s current strength, a continuation of this rise is still a possibility. Although the Japanese economy slowed significantly in the second quarter from the first, the yen may possibly continue to rise against the U.S. dollar. Investors who feel that the Japanese currency has further to run can consider CurrencyShares Japanese Yen Trust (FXY) .

A continued rise in the yen may come about because the Bank of Japan typically is very conservative in its monetary policy, thereby making the yen a predictable safe-haven for currency investors as world economies brace for a slowdown.

Also, after two decades of battling inflation, there is little room left for further easing policies that could stop or reverse the yen’s rise. Although it is expected that some easing measures will be taken at the Bank of Japan’s next meeting in early September, past actions of the bank would suggest that new policy would be only a minor departure from what is currently in play.

Investors who have been buying the yen recently also are also not too concerned about the government’s debt, which is equal to about 200% of GDP. This is because most of Japan’s debt is owned by domestic entities, making capital flight and a run on the yen less likely.

A move to increase interest rates in the U.S. would put a stop to the rise in the yen. Therefore, investors in a fund such as FXY need to be convinced that the economic situation in America will not recover fast enough to warrant such measures in the near future.

For aggressive investors that want to bet on the yen backtracking against the U.S. dollar though, the option of using ProShares UltraShort Yen (YCS) may be attractive.

For less aggressive investors, there is also an equity play for the situation wherein a weakening yen would boost Japanese markets.

I expect that, after weeks of negative news that has helped the yen march forward against the dollar, Japanese markets are set for a big rally once that pressure breaks.

This could present a big opportunity. However, for this scenario, investors may want to use the WisdomTree Japan Hedged Equity (DXJ) rather than the iShares MSCI Japan Index Fund (EWJ) . A rally in EWJ may be held back by the weakening yen since the fund does not hedge against currency fluctuations.

DXJ and EWJ have similar holdings but DXJ hedges against currency movements, meaning investors could play a rise in Japanese equities brought about by a weakening yen without getting burned by exposure to the weakening yen.

Disclaimer