4 ETFs On Fire Right Now

By Billy Fisher | October 31, 2011 AAA

In October, sectors across the board benefited, as the S&P 500 put up one of its best months since 1974. Amidst the rally, some areas of the market in particular have captured outsized gains, while others are struggling to catch up. For index focused investors, here are four ETFs that are leading the market rally.

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Financially Sound
After being taken to the woodshed for the better part of the summer, the regional banking space appears to have regained its footing. The SPDR S&P Regional Banking ETF (NYSE:KRE) has surged an astonishing 27.2%, in the month of October.

The regional banks have benefited directly from improving credit trends and indirectly from the recent European debt deal. Fifth Third Bancorp (Nasdaq:FITB), which is a holding of KRE, recently posted Q3 results which were characteristic of many of its peers. Earnings were up significantly from last year, as net interest income rose slightly and net charge-offs declined. Shares of FITB have risen 23.8%, in the month of October. (For related reading, see Using ETFs To Build A Cost-Effective Portfolio.)

The SPDR S&P Insurance ETF (NYSE:KIE) has been riding on the coattails of the financials rally. It, too, was badly beaten over the summer, but has since risen from the ashes. KIE has jumped 21.6%, since the beginning of October.

Well-Oiled Machines
The rally in oil prices in October has contributed to the success of many ETFs tied in to the industry. The SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) is one of these funds that has been killing it, as it has seen a 26.9% run-up in price during the month.

On Thursday, Exxon Mobil (NYSE:XOM), one of the better known holdings of XOP, parlayed the spike in commodity prices into a 47.9% advance in Q3 EPS, when compared to the same quarter last year. The company was also aided by improved refining margins, during the quarter. XOM shares are up 13.6% so far in October.

One of the more surprising winners during the month of October has been the SPDR S&P Homebuilders ETF (NYSE:XHB); the fund has gained 25% since Oct. 1. Investors in this fund received welcomed news, this past Wednesday, when a Department of Commerce report indicated that sales of new homes increased at their fastest rate in five months. Unfortunately, it has been lower prices that have fueled these sales metrics. (Despite their popularity, exchange traded funds have some drawbacks that investors should know about. For more, see 5 ETF Flaws You Shouldn't Overlook.)

The Bottom Line
October has been a wild month and many sector's ETFs have racked up striking gains. ETFs tied to financials and oil have realized some of the biggest improvements. The challenge now is to determine whether these funds can maintain this positive momentum, or whether these moves are merely a bounce of the bottom. Sentiment is mixed on this point, but the rally remains impressive, nonetheless.

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At the time of writing, Billy Fisher did not own shares in any of the companies mentioned in this article.

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