All American ETF Options

by on July 4, 2010 | ETFs Mentioned:

Happy Fourth of July from the team at ETF Database! Given the chaos of recent weeks in financial markets, investors should be thrilled to relax with fireworks, family gatherings, and good old-fashioned barbecues. To celebrate the Fourth, we take a timeout from talks of double dips, oil spills, unemployment to highlight five all-American ETFs that could put a little patriotic flair into any portfolio:

Build America Bond Portfolio (BAB)

This ETF seeks to replicate the BofA Merrill Lynch Build America Bond Index, which is designed to track the performance of U.S. dollar-denominated Build America Bonds publicly issued by U.S. states and territories, and their political subdivisions. Build America Bonds are a relatively new security, but have become tremendously popular; it’s estimated that eligible governments have issued more than $100 billion in Build America Bonds since they were introduced a little over a year ago as part of the American Recovery and Reinvestment Act of 2009.

Unlike most municipal bonds, these securities are taxable, eliminating one of the biggest advantages of holding munis. The U.S. Treasury makes a payment to the issuers of direct-payment Build America Bonds equal to 35% of the total interest payable to investors. So if a municipality issues a $100 million Build America Bond with a taxable coupon of 10%, the issuer would make an annual interest payment to investors of $10 million and would receive a $3.5 million payment from the Treasury, resulting in an effective interest rate of 6.5%. That allows issuers to offer attractive interest rates; BAB has a distribution yield of almost 6% [see BAB's fact sheet here].

Corn Fund (CORN)

This ETF offers exposure to a staple of any Fourth of July barbecue; CORN, issued by Teucrium, invests in CBOT corn futures [see What’s Gotten Into The Corn ETF?]. Corn is the most widely produced feed grain in the United States; of 10,000 items in a typical grocery store, at least 2,500 items use corn in some form during production or processing. The U.S. accounts for 20% of the world’s corn exports, making it one of the country’s largest and most important crops. Since its inception in early June CORN has gained more than 5%, thanks largely to surprising supply data from the USDA [see CORN's performance charts here].

iShares Dow Jones U.S. Aerospace & Defense Index Fund (ITA)

iShares’ ITA follows the Dow Jones U.S. Select Aerospace & Defense Index, a benchmark that measures the performance of the aerospace and defense sector of the U.S. equity market. ITA has major stakes in aerospace materials producer United Technologies (8.2%), and Boeing Company (7.8%). This ETF holds 32 securities, and allocates about 57% of its assets to its top ten holdings. Not surprisingly, ITA invests almost entirely in the industrial materials sector [see ITA's technicals here]. ITA charges an expense ratio of 0.48% [see ITA vs. PPA: Aerospace ETFs Head To Head].

PowerShares 1-30 Treasury Ladder Portfolio (PLW)

PowerShares’ PLW tracks the Ryan/Mergent 1-30 Year Treasury Laddered Index, which measures the potential returns of the U.S. Treasury yield curve based on approximately 30 equally weighted U.S. Treasury issues with fixed coupons, scheduled to mature in a proportional, annual laddered structure. As such, PLW offers exposure to Treasuries of various durations, making it a “one stop shop” for exposure to government bonds. The majority of the coupon rates lie between 3% and 6% [see the entire coupon breakdown here]. In the past year, this treasury ETF has gained nearly 6% and maintained a healthy dividend of more than 3%.

PowerShares DB USD Index Bullish (UUP)

For investors looking to make a bet on the U.S. dollar, this ETF may make an intriguing option. UUP measures the Deutsche Bank Long US Dollar Index (USDX) Futures Index, a rules-based index composed solely of long USDX futures contracts. These USDX futures contracts pin the performance of the U.S. dollar against a basket of foreign currencies, including the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and the Swiss Franc [see Three ETFs For Euro Dollar Parity]. UUP has had an impressive year, gaining over 6% [see UUP's full fundamentals here]. From an expense perspective, UUP charges 0.50%.

Disclosure: No positions at time of writing.