January 28, 2009

Investment Trends: Oba-Mania for ETFs?

Likely benefactors of Obama's "Get America Back to Work" campaign are in construction-related fields, as well as alternative-energy players.

This year is starting out as a year of hope and change for many Americans.

Following the 2008 meltdown, investors are placing high expectations in the new president. Based on what we've come to know about President Obama so far, certain companies and sectors are expected to benefit from new policies while others are likely to be hurt.

Likely benefactors of Obama's "Get America Back to Work" campaign are in construction-related fields. The U.S. infrastructure is deteriorating. There are roads that need to be rebuilt, bridges that need to be fixed, and structures that need to be reinforced.

One of the first companies that may come to mind is Caterpillar (CAT). No big construction site is complete without heavy duty equipment from CAT. Savvy investors know that investing in individual companies comes with a fair shot of often unpredictable risk.

If you are looking for a broad based basket of stocks that contains CAT and performs like CAT, consider State Street's correlation tracker: <https://www.spdrs.com/tools/correlationTracker.seam> .

This tool identifies correlations among ETFs and individual stocks, using historical price returns.

According to the correlation tracker, the Select Sector Industrial SPDRs display a performance pattern similar to CAT. In addition to the Industrial Select Sector SPDRs, there's also the PowerShares Dynamic Building & Construction ETF.

Another sector that stands to benefit from the Obama administration is alternative energy.

With oil prices hovering around multi-year lows, this might be more of a long-term investment. ETFs that may get a boost from an alternative-energy renaissance would be PowerShares WilderHill Clean Energy and PowerShares WilderHill Progressive Energy. Both ETFs are amongst the worst performers of 2008, which means they are available at sizeable discounts of 60 percent and up.

Once the dust (and confetti) of the inauguration fully settle, we'll have to stand by and see if the proposed new initiatives can provide the support needed to fend off more economic damage and get the economic engine humming again.

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