Caution Key in Second-Quarter ETF Forecast
Major U.S. stock indices are pushing to historical highs while emerging market ETFs like the Vanguard Emerging Market ETF
On the other side of the coin, interest in the defensive asset classes that proved so attractive during the troubled second half of 2011 has fallen by the wayside. During the middle of March, the bottom dropped out for U.S. government-issued debt securities and funds including iShares Barclays 20+ Year Treasury Bond Fund
Gold also seems to have lost its footing. The iShares Gold Trust
As investors prepare to close the book on Q1 2012 and look to the second quarter of the year, the market's prospects appear promising. Much of the domestic economic data continues to point to improvement and with the busiest part of earnings season slated to get underway during the opening weeks of April U.S. companies should stay in the headlines.
Meanwhile, although I still encourage investors to look elsewhere for international exposure, Europe appears to making solid progress as it works to resolve its ongoing sovereign debt crisis. History is even on the side of the bulls; April has traditionally been one of the best months of the year for equity returns.
Many signs point to improvement, but the rally's continuation is far from a sure thing. On the contrary, as we learned last week, there are substantial hurdles that still stand in the way. Slowdown fears in China, for instance, threaten to reignite growth doubts that could quickly derail the market's strength. At the same time, although employment figures and consumer-related reports point to strength, we continue to see signs that indicate the U.S. housing sector remains weak.
Blind bullishness is dangerous and, therefore, aggressive and conservative investors should have these factors in mind when prepping their portfolios for the road head. Dividend-paying equity ETFs like the iShares Dow Jones Select Dividend Index Fund
Meanwhile, investors can boost their level of safety by paring back exposure to excessively risky emerging markets. Single nation products like the iShares MSCI Thailand Investable Market Index Fund
The road ahead may not be perfectly smooth, but ultimately I do not feel that we should be heading for the exits here. By refocusing attention towards slightly less risky instruments, it is possible for even the most fearful investors to ride out a potential squall.
Written by Don Dion in Williamstown, Mass.
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