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Sector ETF Opportunities Going Into 2013


The markets are looking at uncertainty ahead, with the Presidential elections and fiscal cliff here in the U.S. and changes overseas like the new leadership in China, but investors can still find opportunities in sector exchange traded funds.

For instance, real estate related assets, particularly real estate investment trusts that offer attractive yields, have been a major draw over the past year. [ETF Chart of the Day: Mortgage REITs]

“In the U.S., we are seeing an upward trend in commercial real estate,” Brad Sorensen, director of market and sector analysis, Schwab Center for Financial Research, said in a recent conference call with reporters. “Overall, the market seems to be improving.”

Nevertheless, Sorensen cautions that we may experience a short-term pullback, but over the long-term, the sector is improving.

  • Schwab U.S. REIT ETF (SCHH)
  • iShares FTSE NAREIT Mortgage REITs Index Fund ETF (REM)
  • Market Vectors Mortgage REIT Income ETF (MORT)

He also touched upon the energy sector, especially as consumers see prices rise at the pump, they may get a little on the other end at investing, Sorensen said. While Schwab analysts think demand for energy will stay relatively leveled in the short-term, the long-term story will hineg on emerging market growth. [Sector Investing with ETFs]

“We think demand for oil and natural gas will be relatively limited in the near-term, but we still believe developing markets will need more energy to support their societies and expanding infrastructure,” Sorensen added. “But we would not overbuy or jump into energy right now as they may experience a pullback due to the Eurozone and China.”

  • Energy Select Sector SPDR Fund (XLE)
  • Vanguard Energy Index Fund (VDE)

The strategist also looked at the health care sector going into the fourth quarter and into next year.

“Healthcare, especially with valuations, attractive and solid balance sheets, provide a nice balance of growth opportunities and defensive characteristics,” Sorensen added. “They should outperform the market.”

  • Health Care Select Sector SPDR Fund (XLV)
  • Vanguard Health Care Index Fund (VHT)

Looking ahead, sector ETF investors should be wary of what happens during the fiscal cliff and China’s leadership turnover in November. [Election Could Make or Break Health Care ETFs]

ETFs are a good way to invest tactically. The investment tool is a relatively easy and low-cost method to invest tactically with sectors, instead of holding a cuo0ple of securities to gain exposure to a specific area.

For more information on sector funds, visit our sector ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.