Three ETFs to Watch This Month

01/11/2011 7:04 am EST

Focus: ETFS

Traders and investors will be kept busy with the start of earnings season after the market close on Monday, and a round of economic data hitting the street towards the end of the week, including jobless claims, readings on inflation from both the producers and consumers, consumer sentiment, as well as two key European central banks, all of which should make the following ETFs three that investors will want to keep an eye on as January continues:

1. Rydex CurrencyShares Euro Currency Trust (FXE)

Why FXE is in focus: This exchange traded product tracks the EUR/USD exchange rate and has become quite a popular instrument for gaining exposure to the euro. FXE will come into focus later in the week as the European Central Bank announces its decision regarding interest rates this Thursday. Slow growth and uncertainty have plagued the euro zone this year; in fact, FXE has returned a dismal -10% in the past 52 weeks of trading.

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The benchmark rate has been at 1% since May 2009, and analyst consensus is for the rate to remain unchanged. Many anticipate that the rate will remain stable for quite some time since tensions in the euro zone are still high, and worries about the financial health of the continent are still prevalent and surely on investor’s minds. Regardless of the decision, the announcement itself will probably increase trading volumes for FXE, as traders and investors scramble to open/close positions based on the decision and insightful commentary that the bank committee releases regarding its outlook on inflation, growth, and what is likely to come next for the troubled common-currency zone.

2. Global X Aluminum ETF (ALUM)

Why ALUM is in focus: Aluminum giant Alcoa Inc. (AA) is scheduled to kick off earnings season this week when it announces fourth-quarter results. Investors interested in adding commodity producer exposure to their portfolios could consider ALUM, which tracks the performance of the largest and most liquid listed companies that are active in some aspect of the aluminum industry, such as bauxite aluminum ore mining, production, or refinement. The fund has 10% of its holdings allocated to Alcoa, and analyst consensus is for revenues to come in at $5.6 billion with earnings of 18 cents per share. “Alcoa’s laggard status has piqued investor interest in the name as a possible comeback play for 2011 and, given signs of operational stability, we don’t disagree” commented Deutsche Bank analyst Jorge Beristain. Global aluminum consumption is expected to increase upwards of 10% in 2011, with emerging economics like Brazil and China driving demand for construction, infrastructure, and consumer products. Due to these trends and AA’s place as one of the biggest components of ALUM, look for this brand new fund to remain in focus for much of this week’s trading session, especially if the bellwether’s earnings deviate significantly from analyst expectations.

3. Semiconductor HOLDRS Trust (SMH)

Why SMH is in focus: The Semiconductor HOLDRS ETF gives investors concentrated exposure to the semiconductor industry, with the fund’s holdings comprised of just 18 companies in total. SMH will come into focus this week as Intel (INTC), which is 20% of SMH, is slated to report earnings this Thursday. Analysts expect the chip giant to report revenues of $11.37 billion and earnings per share of 53 cents. “Given its position as the largest PC-microprocessor vendor, competitive threats from existing and new entrants are a continual risk,” said Cody Acree, analyst from Williams Financial Group. Furthermore, Acree added that Intel is sure to face some challenges going forward with respect to the company’s attempt to increase its market share, especially in the mobile market.

On the other hand, Intel is a leading provider of server hardware, which is a market that is bound to see an inflow of investments, considering the robust growth that is expected out of the smart phone industry. SMH has had less-than-stellar performance recently, however, as in the past 26 weeks, it has returned an impressive 20%. Investors and traders are sure to keep an eye on SMH as Intel’s earnings are released, and more importantly, take note of any insightful commentary that the company offers with regards to the industry as a whole and their expectations for chip demand in 2011.

By Stoyan Bojinov, contributor,

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