Five ETFs to Watch in Obama’s Second 100 Days

by on May 12, 2009 | Updated May 14, 2009 | ETFs Mentioned:

For those of you who haven’t heard (and you must’ve been on the moon if you haven’t), President Obama recently marked the end of his first 100 days in office. Ever since FDR pushed through 15 major bills in his first 3+ months on the job, pundits have sold the idea of this period as a meaningful indicator of ability and future success (it often isn’t). After a frantic first 100 days that involved bankruptcies, bailouts, pirates, and pandemics, here’s a look at five ETFs to keep your eye on over the next 100 days of Obama’s presidency.

  1. Dow Jones U.S. Pharmaceuticals Index Fund (IHE): Although we seem to have dodged the swine flu bullet for now, many health experts are warning that we are not out of the woods yet. Some are predicting that the virus has faded for the moment, but could return with a vengeance once flu season begins. Regardless of whether these fears turn out to be founded, it is possible that drug manufacturers will be ordered to begin testing and mass production of vaccines over the next three months. If so, IHE, which has interests of 5% or more in each of Pfizer (PFE), Abbott (ABT), Wyeth (WYE), Merck (MRK), and Eli Lilly (LLY), could be poised for a big gain.
  2. Financial Select Sector SPDR (XLF): The financial sector has been in the headlines for more than a year now, mostly as it relates to greed, corruption, scandals, and the general collapse of the banking system as we know it. But we’re finally starting to see some good news, with stress test results beating expectations and spurring a mini-rally in financials. Now focus shifts to whether the banks that “failed” the stress tests (many of which are owned by XLF) will be able to quickly and efficiently raise the required capital. If they are, financials could extend their rally over the summer months.
  3. Wisdom Tree Dreyfus Emerging Currency Fund (CEW): In times of financial uncertainty, investors tend to flock towards reserve currencies, the largest of which have historically been the U.S. dollar and the Japanese yen. If we have truly begun to emerge from this recession, investors may become gradually more comfortable moving assets into more risky currencies. But if we’ve simply passed through the eye of the storm, we may see another rush into safety currencies.
  4. iShares Barclays TIPS Bond (TIP): Unlike European economies, which have raised taxes and slashed budgets in the face of the financial crisis, the U.S. has tried to spend its way out of a recession. Massive stimulus plans have necessitated massive borrowings, and the U.S. government has been printing money “like a drunken sailor” (to borrow a phrase from fellow analyst Andy H). TIP provides peace of mind that if inflation hits double digits (it’s happened more recently than you might think), you will still earn a positive real return. Although inflation rates are near historical lows now (with deflation even a possibility), the time will eventually come to pay the piper, and inflation will eat into real returns. When it does, investors in TIP won’t be losing any sleep.
  5. PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ): During economic downturns, luxury items are often the first to go, and this recession has been no different. People around the world have been aggressively trimming the fat from their personal budgets, and leisure activities have been on a rapid decline (in December, PEJ was down nearly 60% from its 52-week high). If the worst is infact behind us, expect increases in consumer confidence to spur leisure and entertainment spending. With major holdings in Disney, various restaurants, and cruise lines, PEJ could see an accelerated recovery if the market turns. But if not, it could be more gray skies ahead.