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 ETFs for the Remainder of 2011

The past several months have seen a marked increase in stock market volatility, causing considerable unease among many investors. With the continued uncertainty concerning the European debt crisis and the weak American economy, markets have been swinging violently on the latest news and rumors. Whereas one percent daily moves used to be a rare event, they have now become the norm.

In this environment, many investors have become paralyzed by indecision, fearing that they may make a wrong decision that could drastically harm their bottom line. The best thing you can do is to evaluate your options by looking at the many exchange traded funds that could potentially help you for the rest of 2011.

With the recent uptick in volatility, many investors have been looking ETFs that track track the CBOE market volatility index, better known as the VIX. One of the most popular volatility ETFs is the iPath S&P 500 VIX Index, traded under the ticker name of VXX. Sometimes referred to as the “fear index,” VXX has seen a considerable increase in price over the past three months as market uncertainly has increases. However, the VXX could drop in price just as quickly as it rose if a resolution to the sovereign debt crisis in Europe is resolved.

Leveraged ETFs have also become very popular in recent times as investors look to amplify their returns with the use of debt. Investors can play both the long side and the short side of almost any market, depending on their opinion of future price movement in different industries. For the bears, the ProShares UltraShort S&P 500 (SDS) is designed to track double the inverse movement of the S&P 500 index. As such, falls in the S&P 500 increase the value of the SDS. If an investor has a bearish sentiment about the future of the stock market and wants to take on some added risk, this could be one way to play it.

As for the bulls, Direxion Daily Financial Bull 3X (FAS) has become a popular ETF in equity markets. FAS is designed to track the Russell 1000 Financial Services Index. Ever since the 2008 credit crisis, bank stocks have been hammered: Bank of America and Citigroup have both lost more than 90 percent of their value. Some traders have been betting on a turnaround in this sector, thinking that they have been oversold. However, given the large amount of leverage used in this ETF, it is a very risky bet. Even famous hedge fund managers like John Paulson have lost lots of money betting on a turnaround in the banking sector.

Given the growth of exchange traded funds in recent years, there is no part of the market in which you can’t invest. However, given the risk and uncertainty in this current market, ETF investors need to do their homework before investing any of their hard-earned money.