AUSTIN, Texas (MarketWatch) -- April will prove to be an interesting month for investors. If the worst financial news is behind us, the bulls will be in play. Our indicators suggest this may be the case.
As the market rebounds, there are three areas you should consider: banks, small-cap value and Taiwan.
Banks have been given a reprieve in recent weeks. Signs of life in the real estate market and Federal Reserve action to prop up the financial sector appear to be the reasons.
The National Association of Realtors reported an uptick in February sales. Though home prices have dropped across the board, lenders are more apt to make loans compared to recent months. With rates plunging, some banks are well-positioned to pick up the pieces of the wounded home finance market. The Federal Housing Finance board recently approved $200 billion increase in purchasing power for Fannie Mae and Freddie Mac. This move is beginning to have traction in the sector.
One fund that would greatly benefit on the bank turnaround is Fidelity Select Home Finance (FSVLX). Weighted with more conservative banks like Hudson City Bancorp (HCBK), FSVLX also capitalizes on recently-bolstered Fannie Mae and Freddie Mac holdings. Although the housing sector has suffered in the past 12 months, FSVLX's performance is over 10% better than its benchmark: MSCI US Thrifts & Mortgages. Technically, FSVLX recently hit a 7.5 year low. A bottom appears to be in place for the fund. In addition, our indicators show a shift into this sector in recent days. Shop the marketplace of mutual funds: you'll be pressed to find a bargain like Fidelity Select Home Finance.
Value
Style investing is slightly different from sector investing. Usually less volatile, investing in individual styles still offers the benefits of focusing in a particular area of the market. Over the last few weeks, one style has risen to the top of our rankings and has yet to be displaced: small-cap value. While analysts have been proclaiming the shift to growth and the security of large-cap stocks, small-cap value stocks have quietly taken the lead without any fanfare.
The best place to take advantage of the new leadership is iShares Russell 2000 Value (IWN). IWN is a good play on small-cap value. Trading more than 3 million shares a day, IWN's volume dwarfs its exchange-traded fund competitors at PowerShares (PWY) and Vanguard (VBR). Plus, its sector-weighting is also attractive. Although not a sector-based ETF, IWN has substantial financial services (32.2%) and industrial materials (17.5%) exposure. This bodes well for the near-term. Whether you buy the iShares, Powershares or Vanguard offering, the important thing is to get small-cap value exposure as the market bottoms out and begins to strengthen.
Taiwan
Extending the outlook to international markets, Asia is rising again. Just as China and India dominated the headlines last year, Taiwan is now reclaiming some space on the business pages.
After succeeding in recent elections, pro-business candidate Ma Ying-Jeou has called for a peace treaty with China. This approach is far different from previous administrations. Taiwan has courted a more adversarial response in recent memory against its traditional antagonist on the Asian continent. Those looking for amends in the strained relationship welcome President-elect Ma's administration with open arms.
Barclay's iShares MSCI Taiwan Index Fund (EWT) is one of the best places for U.S. investors to participate in Taiwan's new outlook. True to its country of origin, MSCI Taiwan Index is strongly invested in semiconductors and electronics. This fund represents 85% of the Taiwanese market. Though "Made in Taiwan" labels have increasingly been replaced with "Made in China", the infrastructure is in place for Taiwan to reassert itself on the global economic stage.
April may be the month for Taiwan to shine. If that happens, EWT will be the place to be.
Ron Rowland is president of All Star Investor.com and Capital Cities Asset Management. He's been editing the All Star Fund Trader mutual fund newsletter since 1990. (allstarinvestor.com)
Updates
