ETFs to Cope With Market Uncertainty

After closing out a dismal August, the markets seem to have stabilized in September. Make no mistake: The economy is still working out its kinks, which means you need to stay on your guard and know which exchange-traded funds (ETFs) are best when the going gets rough.

Income. Not a lot will change in the next couple of weeks, remarks Gary Gordon for ETF Expert, so income-oriented investments may be the smart move.

  • S&P SPDR Dividend Fund (NYSE: SDY  ) holds S&P 500 companies that have increased payouts for 25 consecutive years. The fund yields 3.41%, which is still better than the 10-year Treasury bond.
  • iShares High Yield Corporate Bond (NYSE: HYG  ) holds companies rated "junk" and yields 8.46%.

Global ETFs. Midterm elections will throw in another dose of political volatility around mid-October, and Gordon recommends growth-type investments or emerging-market ETFs. However, be aware that these investments do come with their own set of risks. The broader a fund is, the lower the risk; take your pick -- single country or total region? (See "ETFs That Yield More Than Your Savings Account.")

  • WisdomTree Emerging Market Small Cap (NYSE: DGS  ) holds the stock of small-cap companies in countries such as Taiwan, South Korea, South Africa, Thailand, Turkey, and Brazil. Small-cap stocks are a way to play domestic economies in these countries.
  • Global X/InterBolsa FTSE Colombia (NYSE: GXG  ) is the top-performing ETF year-to-date, up 47.3%. Here's why.

Pick your spots. Finally, use a strategy to find areas that are in potential long-term uptrends while avoiding those that aren't performing. The strategy we follow is the 200-day moving average. When an ETF falls below its 200-day EMA, it's a sell signal. When it rises above its 200-day EMA, it's a buy. Having a predetermined sell point will make selling a little easier when it's time to do so; waiting until you "feel" it's time to sell could lead to trouble.

For more information on fixed-income ETFs, visit our dividend ETFs category.

Max Chen contributed to this article.

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