ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | August 27, 2012 1:25 pm

ETF Alternatives for Last Week’s Hot Stocks

The S&P 500′s six-week winning streak came to an end last week, losing 0.5% despite a positive bounce on Friday on news the fed will once again ease financial conditions to strengthen the economy.

And with the summer winding down, InvestorPlace contributors were busy recommending stocks to hold into a potential fall rally. Here are the ETF alternatives to those stock picks.

Silver

The price of silver looks to be bottoming out[1] and that had James Brumley discussing the latest $750 million deal by Silver Wheaton (NYSE:SLW[2]) to acquire the silver produced by HudBay Minerals at their mines in Canada and Peru. It’s the Canadian company’s first deal in over two years, indicating that the market for silver is heating up.

Silver Wheaton doesn’t operate its own mines, though. Rather, it invests in mines operated by others and buys some or all of the production of those mines — and it’s the biggest in this regard.

If you want to capture the upside of Silver Wheaton while stillĀ  diversifying, the best and least expensive route is to buy the iShares MSCI Global Silver Miners Fund (NYSE:SLVP[3]), which has 30 holdings all involved in the production of silver. Silver Wheaton is the top holding in the ETF with a weighting of 19.90% and the fund’s annual expense ratio is 0.39%, which is reasonable for a specialty fund.

Utilities

On Tuesday, Susan J. Aluise highlighted three water utilities[4] to consider given the record volumes of water they are pumping in the current drought conditions across the country. With earnings improving nicely and dividend yields upwards of 3%, these stocks provide defensive investors with an excellent growth opportunity.

Utilities, water or otherwise, are definitely not an interest of mine, but they can still play an important role in any portfolio. If you’re not sure where to turn because one utility seems like every other, I’d go with the PowerShares Water Resources Portfolio (NYSE:PHO[5]), which is intended to track the performance of publicly traded companies that create products to conserve and purify water.

American Water Works (NYSE:AWK[6]), the largest water utility in the U.S., is the second-biggest holding at 8.04%. Utilities represent approximately 25% of the $776 million portfolio. At 0.66%, its expense ratio isn’t cheap. However, if water utilities are what you’re after, you’re not going to find something less expensive with a significant representation.

Consumer Discretionary

Football was on the mind of InvestorPlace assistant editor Marc Bastow midweek, as he reminded readers that the NFL season is just around the corner. Inevitably, the beginning of the season gets investment writers thinking of sports-related stocks[7] like Nike (NYSE:NKE[8]) and Under Armour (NYSE:UA[9]) that are both heavily involved in outfitting pro and collegiate football teams.

Given our obsession with sports, you would think there would be an index and ETF that focuses on sport-related investments. Alas, there is no such beast. There also isn’t an ETF that adequately represents all three of Bastow’s stock recommendations.

Therefore, your best bet to capture all three is a consumer discretionary fund like the Vanguard Consumer Discretionary Fund (NYSE:VCR[10]), which charges just 0.18% annually and holds 371 consumer discretionary stocks with the 10 largest (Nike included) accounting for 35% of the portfolio. It’s not ideal, but it is the best available solution.

Restaurants and Resorts

On the second-to-last day of the week, Portfolio Grader was busy recommending a total of nine resort and restaurant stocks[11] with a B-rating or higher whose rating improved at least one grade in the previous week.

Leading the list of recommendations on the restaurant side were Darden Restaurants (NYSE:DRI[12]) and Buffalo Wild Wings (NASDAQ:BWLD[13]). On the resort side were Vail Resorts (NYSE:MTN[14]) and Wyndham Worldwide (NYSE:WYN[15]).

You’re not going to find one ETF that holds all four to any great extent so the better move is to look at the PowerShares Dynamic Leisure and Entertainment Portfolio (NYSE:PEJ[16]), which owns Wyndham Worldwide and invests primarily in hotels, resorts, restaurants and other entertainment companies. With just $49.8 million in net assets, those concerned with liquidity might take that into consideration.

Biotech

My final ETF alternative is for an article James Brumley wrote last Saturday about Gilead Sciences (NASDAQ:GILD[17]), the world’s biggest maker[18] of AIDS-related treatments. With 40% market share and approximately $7 billion in HIV-related drug sales in 2011, Gilead is the leader in a very competitive market. And its new “Quad” pill, which provides four therapies in one, looks like it could vault the company even further into the lead.

The best bet to take advantage of Gilead’s potential growth, while also providing some diversification, is to go with the Market Vectors Biotech ETF (NYSE:BBH[19]), which only charges 0.35% and has Gilead as its second largest holding at 9.91%. The fund itself seeks to replicate the performance of the Market Vectors US Listed Biotech 25 Index, which encompasses 25 of the largest publicly traded biotech companies anywhere.

As of this writing, Will Ashworth did not own a position in any of the stocks named here.

Endnotes:
  1. bottoming out: http://investorplace.com/2012/08/the-smart-silver-play-silver-wheaton/
  2. SLW: http://studio-5.financialcontent.com/investplace/quote?Symbol=SLW
  3. SLVP: http://studio-5.financialcontent.com/investplace/quote?Symbol=SLVP
  4. water utilities: http://investorplace.com/2012/08/3-water-utilities-thriving-in-the-drought/
  5. PHO: http://studio-5.financialcontent.com/investplace/quote?Symbol=PHO
  6. AWK: http://studio-5.financialcontent.com/investplace/quote?Symbol=AWK
  7. sports-related stocks: http://investorplace.com/2012/08/3-stocks-to-grab-by-the-facemask-nke-ua-fl/view-all/
  8. NKE: http://studio-5.financialcontent.com/investplace/quote?Symbol=NKE
  9. UA: http://studio-5.financialcontent.com/investplace/quote?Symbol=UA
  10. VCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=VCR
  11. nine resort and restaurant stocks: http://investorplace.com/2012/08/9-restaurant-and-resort-stocks-to-buy-now-bwld-wyn-club/
  12. DRI: http://studio-5.financialcontent.com/investplace/quote?Symbol=DRI
  13. BWLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=BWLD
  14. MTN: http://studio-5.financialcontent.com/investplace/quote?Symbol=MTN
  15. WYN: http://studio-5.financialcontent.com/investplace/quote?Symbol=WYN
  16. PEJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=PEJ
  17. GILD: http://studio-5.financialcontent.com/investplace/quote?Symbol=GILD
  18. world’s biggest maker: http://investorplace.com/2012/08/gilead-poised-to-go-from-good-to-great/
  19. BBH: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBH

Source URL: http://investorplace.com/2012/08/etf-alternatives-for-last-weeks-hot-stocks-22/
Short URL: http://invstplc.com/1fy3tx2