ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | January 2, 2013 1:32 pm

The Christmas holiday resulted in abbreviated trading last week, with the S&P 500 finishing just under 2% in the red. With the fiscal cliff not yet resolved, investors continued to hold a negative view of the future.

Still, despite the weekly decline, the index experienced above-average returns in 2012 and looks promising for 2013. With that in mind, here are five ETF alternatives to stocks recommended last week:


A day after Christmas, InvestorPlace contributor Aaron Levitt highlighted JPMorgan‘s (NYSE:JPM[1]) top five energy picks for 2013[2]. Included were deepwater driller Noble (NYSE:NE[3]) and exploration large-cap Marathon Oil (NYSE:MRO[4]).

Save yourself a lot of time and effort agonizing over which stock to buy and instead pick up the Guggenheim S&P 500 Equal Weight Energy ETF (NYSE:RYE[5]), which owns all five stocks at approximately the same weighting of just over 2%

Equal-weight ETFs are attractive to some investors because they prevent overweighting due to rebalancing. Although I’d prefer to see annual (rather than quarterly) rebalancing, you’re getting a reasonably priced ETF that stands to outperform a cap-weighted fund at a cost of 0.50%.


Next up, the editor of Dividend Growth Investor recommended four stocks[6] to add in 2013. Dividend Growth Investor looks for quality stocks that grow dividends by at least 6% annually. Each of the four recommendations have increased annual distributions over the past five years by at least 15%.

At the top of the list is Yum! Brands (NYSE:YUM[7]), which has managed to boost them by 31% annually between 2007 and 2012. Keep in mind that some of that increase was due to share repurchases, but nonetheless it’s impressive.

To capture all four recommendations, though, your best bet is the WisdomTree Total Dividend Fund (NYSE:DTD[8]), which is fundamentally weighted rather than by market cap or equal weighting. Fundamentally weighted ETFs outperform both of these other types of ETF.

Although none of the four stocks are in the top ten holdings, its 30-day SEC yield of 3.07%, along with an annual expense ratio of 0.28%, makes it very attractive to income investors.


James Brumley spent the day after Christmas pondering which stock to own: Abbott Laboratories (NYSE:ABT[9]) or its spin-off AbbVie Inc. (NYSE:ABBV[10]). Abbott shareholders received one new share Jan. 2 in its pharmaceutical business for every share of the parent. Of the two businesses, AbbVie will have the greater risk/reward profile along with significantly more debt.

If you own Abbott stock, I’d hold on to the spin-off shares[11]. If you don’t own either but would like to get in on the action, I’d consider the iShares S&P 100 ETF (NYSE:OEF[12]), which already holds Abbott Labs and will add AbbVie, replacing Dell (NASDAQ:DELL[13]).

Over the past few years, the S&P 500 has outperformed its smaller cousin but reversion to the mean should work in your favor. Plus, an annual expense ratio of 0.20% is reasonable, while its 30-day SEC yield of 2.1% is also appealing.

Home Furnishings

Last week, I recommended two home furnishing stocks[14] instead of Ethan Allen (NYSE:ETH[15]), which Jim Cramer touted prior to Christmas in an interview with CEO Farooq Kathwari. In order to own both stocks, you would have to buy two homebuilding ETFs, which makes absolutely no sense whatsoever.

Therefore, I’m going to suggest the SPDR S&P Homebuilders ETF (NYSE:XHB[16]), which owns both Tempur-Pedic (NYSE:TPX[17]) and Ethan Allan amongst its 37 holdings. The housing recovery is expected to continue in 2013 providing XHB owners with another likely year of gains.


Hilary Kramer brings another weekly installment to a close recommending five financial stocks[18] worth owning because of their ability to navigate the new regulatory environment. Of Hilary’s recommendations, two in particular stand out in my opinion: Itau Unibanco Holding SA (NYSE:ITUB[19]) and BlackRock (NYSE:BLK[20]).

I like Itau Unibanco despite concerns that BRIC countries like Brazil are going to hit rough economic waters in 2013. Plus, as Hillary points out, it’s a huge well-managed bank. As for BlackRock, its iShares business will continue to take market share.

Speaking of its ETF business, the best alternative to Hilary’s recommendations is the iShares Global Financials ETF (NYSE:IXG[21]), which owns four of her five picks with only Fortress Investment Group (NYSE:FIG[22]) not included. The U.S. accounts for 38.4% of the portfolio with the UK, Australia and Canada the next largest countries by weighting. At 0.48%, you’re paying a reasonable fee for global exposure. Sometimes the cheapest isn’t always the best.

Happy New Year!

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

  1. JPM:
  2. top five energy picks for 2013:
  3. NE:
  4. MRO:
  5. RYE:
  6. four stocks:
  7. YUM:
  8. DTD:
  9. ABT:
  10. ABBV:
  11. spin-off shares:
  12. OEF:
  13. DELL:
  14. two home furnishing stocks:
  15. ETH:
  16. XHB:
  17. TPX:
  18. five financial stocks:
  19. ITUB:
  20. BLK:
  21. IXG:
  22. FIG:

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