One of the biggest reasons that these bond ETFs have appeal is the widening spread between the yields they offer as compared to those offered by US Treasuries.   Some of these high-yield instruments offer 12-month yields greater than 7% as compared to a mere 0.11% offered on a 12-month Treasury note. 

A second reason to consider high-yield bonds is that corporate debt levels have been falling and overall debt burden on balance sheets has been declining.  One of the reasons for decreasing debt burdens is the low interest rate environment that is currently prevailing which allows companies to refinance their debt at lower rates. 

Lastly, defaults on high-yield corporate bonds are well below historical rates. One reason behind this is more stringent lending regulations.  Another reason is that companies that survived the Great Recession, did so for a reason and are likely to remain afloat in the near term future.

Some ways to play high-yield corporate bonds include:

•  iShares iBoxx $ High Yield Corporate Bd (HYG), which boasts a 12-month yield of 7.97%
• SPDR Barclays Capital High Yield Bond (JNK), which boasts a 12-month yield of 7.43%
• PowerShares Fundamental High Yield Corporate Bond Fund (PHB), which boasts a yield of 6.25%.

Disclosure: Long HYG

According to the World Resources Institute, consumption of water has been growing at a rate more than twice that of population growth.  Demand for the essential commodity is expected to increase by more than 50 percent over the next 15 years in developing markets and by more than 15 percent in developed markets like the United States. 

This demand in developing nations is emerging as incomes are rising and people are moving out of rural areas into more developed parts of the countries. In fact, a report by the United Nations indicates that nearly 50 percent of the world’s population currently lives in cities and over the next 35 years this number is expected to rise to more than two-thirds.   

Further demand support is likely to dwell from increasing global populations.  Most recently, the world’s population broke the 7 billion mark and it expected to surpass the 9 billion mark within the next 40 years.  Much of this growth has been, and will likely continue to be, witnessed in the developing nations of Africa and Asia.    

On the supply side, water scarcity and water stress has already prevailed in parts of Russia, China and the US.  Furthermore, the expected impacts of Mother Nature’s doing- more severe flooding and droughts- are expected to curtail the supply of potable water. 

The world has a large amount of water; however, only 2.5 percent of it is fresh water and a mere 33 percent of this fresh water can be used for agricultural purposes and human consumption.  

At the end of the day, a supply and demand imbalance in the most important commodity around the world has, and is likely to continue, to prevail, setting the stage for an influx in investment into the sector on both the domestic and international stage. 

Disclosure: No Positions               

According to the UN Food and Agriculture Organization, Thailand witnessed the its worst flooding in more than 50 years resulting in nearly 13 percent of the nation’s rice crop to be destroyed.  This is vital to global supply as that Thailand accounts for more than 30 percent of global rice exports. 

Further supply constraints are expected to dwell in South America as the region is witnessing La Nina weather patterns.  La Nina is characteristic of low rainfall and dry weather, which could result in hindered rice and grain production.

Lastly, global production is expected to be curtailed by the weather witnessed in Arkansas.  Arkansas, which accounts for more than 40 percent of US output, faced flooding in the beginning of the year and a drought through the summer, allowing the USDA to forecast a 32 percent reduction in crop. 

On the demand side, consumption of staple commodities like rice and grains is expected to remain insatiable.  The world population continues to grow and rice remains a major player in most diets around the world.  In fact, according to a Bloomberg article, consumption of rice has increased every year since 2006 and economic growth in the Group of 10 countries is expected to accelerate at a higher rate in 2012 than 2011, which should translate to a boost in consumption.

In a nutshell, supply shocks around the world are expected to boost rice and grain prices as demand remains steady and grows, despite excess supply that could potentially be brought to the global market by India.

Disclosure: No Positons

On the production side, both wheat and corn have taken a major hit over the past couple of years as natural disasters and crop disease have plagued some of the major producing parts of the world.  Russia, for example, witnessed a severe drought over the past few years which has curtailed production of wheat, forcing the Kremlin to halt exporting the commodity to ensure that domestic supply can meet domestic demand.  Similarly, the current drought in Texas is starting to take its toll on corn production keeping prices of corn elevated.  In fact, the Agriculture Department expects a national average corn yield in the US of 153 bushels per acre, nearly 4% lower than its earlier forecasts. 

Furthermore, excessive rainfall last year in Canada hindered planting and harvesting in the region which negatively impacted wheat supplies.  Lastly, production has taken a toll in parts of Africa due to a disease known as wheat rust UG99, which has completely destroyed numerous crops across the continent. 

Global demand for wheat and corn are also providing positive price support for the agricultural-based commodities.  Growing populations around the world are supporting organic demand for food, while increased wealth in emerging markets and the desire to live a Western lifestyle are pushing up overall demand for food and increased demand for corn used for animal feeds. 

In addition, demand for corn continues to be supported due its staple use in the production of ethanol and will like continue to have support from this alternative energy source as the desire to utilize clean energy remains a priority around the world.

At the end of the day, supply and demand imbalances are pushing wheat and corn prices higher (both staples in the production of food).  Although food producers are likely to increase production to meet increased demand, this will take years to implement, and therefore prices are likely to remain high. 

As previously mentioned, from an investor’s perspective, some ways to play this include:

• iPath Dow Jones-UBS Agriculture Subindex Total Return ETN (JJA), which allocates 27.35% of its asset base to corn and 14.2% to wheat.
• iPath Dow Jones-UBS Grains Subindex Total Return ETN (JJG), which allocates 40.76% of its assets to corn and 21.17% to wheat.
• UBS E-TRACS CMCI Food T ETN (FUD), which seeks to replicate the performance of a basket of futures contracts from the agricultural and livestock sectors
• Market Vectors Agribusiness ETF (MOO), which is an equity play and includes companies such as Potash Corp of Saskatchewan (POT) and Monsanto Company (MON).

Disclosure: No Positions

In general, the utility sector is known for shooting off decent dividends and carries a relatively high degree of safety. The sector remains a safe haven and tends to shine in times of uncertainty because the services that it offers are an indispensible part of life, enabling utilities to have reliable earnings streams.

Another reason utilities remain attractive is because they have overcome many of the regulations that once hindered their performance by driving up operational costs.

Additionally, in a low growth environment, which the U.S. currently is in, utilities provide a yield that is greater than their debt, further boosting their appeal.  Currently, major utility players are generating yields of 4%-5%.

Lastly, there doesn’t seem to be much improvement in the overall health of the U.S. economy.  Unemployment levels remain stubbornly high and don’t seem to be improving; consumer confidence remains wary in both the current state of the economy and where it is heading in the near-term future.

Some diversified ways to gain access to major utilities like Exelon Corporation (EXC), Southern Company (SO), Dominion Resources (D) and Duke Energy (DUK) include:

• the Vanguard Utilities ETF (VPU)
• the iShares Dow Jones US Utilities Sector Index Fund (IDU)
• the Utilities Select Sector SPDR (XLU)

When investing in these ETFs, it is equally important to do so with caution. A good way to implement this is through the use of an exit strategy which identifies specific price points at which a downward trend is highly likely to occur.

Disclosure: No Positions

According to the U.S. Energy Information Agency, U.S. coal exports rose 49% during the first quarter of 2011 from the same quarter a year ago, pushing exports to their highest quarterly levels since 1992.  This growth has primarily been supported by a recent surge in demand for steam coal, which witnessed a 160% increase during the same time period, followed by a 21% increase in coking coal exports.  Although steam coal appears to be the larger catalyst in export growth of coal, coking coal remains the primary coal export, accounting for 64% of all coal exports.

One factor behind this increased demand for US coal is the disruption in global coal supply caused by natural disasters such as typhoons and flooding in Australia and the earthquakes in Japan which both led to reduced coal production.  As for the near-term future, these supply constraints are expected to remain intact further supporting increases in exports of US coal.

As for the future of demand for coal, the outlook remains promising.  Coal is one of the cheapest and most effective ways to generate energy and there is plenty of it to go around.  Demand is especially expected to remain insatiable in emerging Asia as the need to generate more electricity and fuel power plants continues to rise. 

In a nutshell, coal is expected to witness positive upside in the near-term future as supply and demand imbalances prevail.  Some ways to play coal include:

• Market Vectors Coal ETF (KOL), which seeks to track the overall performance of a global universe of listed companies engaged in the coal industry.  KOL allocates nearly 55.4% of its assets to US coal companies and includes Peabody Energy (BTU), Joy Global (JOYG) and Consol Energy (CNX) in its top holdings.
• PowerShares Global Coal Portfolio (PKOL), which seeks to track the overall performance of globally traded securities of the largest and most liquid companies involved in the exploration for, and mining of coal, as well as other related activities in the coal industry.  PKOL allocates roughly 30.9% of its assets to US coal companies and includes Peabody Energy, Consol Energy and Alpha Natural Resources (ANR) in its top holdings.

Disclosure: No Positions

Fundamentally speaking, the sector has numerous headwinds and continues to remain weak.  As a whole, the sector has been plagued by falling prices, inventory buildups and extension of credit terms.  In fact, Stephen Simko of Morningstar suggests that the industry will likely bottom out in the coming months despite witnessing increased global installation activity due to lackluster demand, which will make it very difficult to reduce inventory levels and keep factories running at high utilization rates.

As for global demand, Simko suggests that aggregate demand needs to be at a minimum of 23 GW in order to support the current pricing levels of $1.40 to $1.50 per watt of solar module and forecasts are pegging demand for this year to reach about 18.3 GW, resulting in margin compression throughout the industry for the remainder of the year. 

Further constraints and negative impacts in the industry are expected to dwell as companies write down inventory and low cost global manufacturers are forced to reduce production levels and incur negative operating leverage. 

At the end of the day, the solar industry has an uphill battle to fight and will likely continue to see negative price support in the near-term future; however, as industry fundamentals improve bringing supply and demand back towards equilibrium, the sector could have a promising long-term outlook.

Some ETFs impacted by the solar industry include:

• Guggenheim Solar (TAN), which includes companies that derive a significant portion of their revenues from the solar energy sector.
• Market Vectors Solar Energy ETF (KWT)
• iShares S&P Global Clean Energy Index (ICLN), which allocates a significant portion of its holdings to solar energy companies such as First Solar (FSLR), GT Solar International (SOLR) and Trina Solar LTD. (TSL).
• Market Vectors Glb Alternatve Energy ETF (GEX), which boast First Solar as its top holding.

Disclosure: No Positions

More specifically, the Durbin Amendment is aiming at preventing both MasterCard (MA) and Visa (V), who constitute roughly 80 percent of all credit and debit card transactions, from continuing to increase debit card interchange fee rates.  To regulate the fee structure, the amendment would direct the Federal Reserve to issue regulations to ensure that interchange fees imposed are “reasonable and proportional” to the cost incurred in processing the transaction. 

Initially, under the Amendment, the Fed proposed a haircut on signature and online debit interchange fees bringing them down to 12 cents per transaction, which cut into earnings for some banks by as much as 10%.  Many analysts and experts predict that when the final ruling of the Amendment is complete, this interchange fee cap will likely be significantly higher than 12 cents, but below the rates before the initial proposal, likely resulting in a jump in earnings for some banks. 

As for the electronic payments network giants, Visa and MasterCard, the final version of the Amendment is expected to not require signature exclusivity which will likely open up competition for both companies and contribute to an increase in overall earnings. 

From an investor’s standpoint, some equities that could be impacted by the Durbin Amendment include:

• First Trust US IPO Index (FPX), which boasts Visa as its second largest holding at nearly 9.15% of assets.
• SPDR KBW Bank ETF (KBE), which is a diversified play on the banking sector and includes Wells Fargo (WFC), Bank of America (BAC), US Bancorp (USB) and Fifth Third Bancorp (FITB) in its top holdings.  All of these banks derive a significant portion of their revenues from the aforementioned transaction fees.
• iShares Dow Jones US Financial Sector (IYF), which boasts some of the previously mentioned large-cap banks as well as Visa in its top holdings.

Disclosure: No Positions

According to Liem Denning of the Wall Street Journal, Indonesia is the next Brazil, which was the best performing BRIC nation over the past five years and is ripe for exponential growth.  A major driver behind Indonesia’s appeal is the fact that it is flush with natural resources.  The Southeast Asian nation is the world’s largest exporter of thermal coal and palm oil and has an ample supply of crude oil, natural gas, tin, copper and gold. 

Furthermore, the nation of islands is a member of OPEC but doesn’t export oil, instead using its oil production to turn the wheels of its own economy.  By doing so, Indonesia shuns itself from the volatility of crude oil and the potential imbalances in supply and demand of the commodity which could cripple a growing economy.   Another perk of being a commodity powerhouse (i.e. palm oil) is that the nation has the ability to increase food production as its population becomes wealthier, which helps mitigate the effects of inflation and dependency on other nations. 

A second reason to watch Indonesia is its labor force.  The nation is abundant with young, intelligent workers who are willing to work for lower wages than their other Asian counterparties.  In fact, the World Bank estimates that Indonesia’s working population will peak in 2040 as compared to China’s, which is expected to peak sometime this decade. 

A third reason to consider Indonesia is its domestic sector.  Consumer spending constitutes nearly 65 percent of Indonesia’s GDP and the nation’s per capita GDP in purchasing-power parity terms is expected to increase by more than 6 percent annually over the next five years.  As purchasing power increases, spending on non-discretionary items tend to follow, which will likely provide positive support to the nation’s GDP. 

Lastly, Indonesian stocks appear to be relatively cheap as compared to counterparties.  Currently, Indonesian stocks are trading at roughly 12.5 times earnings as compared to nearly 20.1 times for India’s Nifty Index and more than 13 times for the Bovespa Index.

From an investor’s standpoint some easy ways to gain access to Indonesia include:

• iShares MSCI Indonesia Investable Market Index Fund (EIDO)
• Market Vectors Indonesia Index ETF (IDX)

Disclosure: No Positions

Although rare earth metals can be found in parts of the world, as of today, China has a monopoly on them accounting for nearly 95 percent of global production.  Therefore, when China reduces exports of the metals, a global supply constraint could emerge. 

As for global demand of rare earth metals, it is on the rise and worldwide demand is expected to exceed supply by as much as 40,000 tonnes annually if current production facilities remain intact and other nations don’t ramp up production.  Demand for rare earth metals has primarily been supported by the need and desire for high and improved technology through their uses in super conductors, fiber-optic cables and cellular phones.  Additionally, rare earths have useful applications in the energy sector as that they are used in magnets for wind energy turbines and in the batteries of hybrid and electric vehicles (as the desire to seek alternative clean energy sources continues to prevail, demand for rare earths will likely follow).  A third force that has been supporting demand of rare earth metals is the military.  These metals are often used in weaponry and are found in GPS systems.   

At the end of the day, demand for rare earth metals is not likely to dissipate anytime soon, in fact it is expected to grow, and China has started to tighten market supply of these metals, which will likely result in positive price support in rare earths. 

As mentioned above, a diversified approach to gaining access to rare earths is through the Market Vectors Rare Earth/Strategic Metals ETF (REMX).  REMX seeks to track the overall performance of a basket of publicly traded companies primarily engaged in a variety of activities that are related to the mining, refining and manufacturing of rare earth/strategic metals.  Some of its holdings include Australian miners Iluka Resources and Lynas Corp. LTD., US-based Thompson Creek Metals Co. (TC) and Molycorp (MCP) and China-based China Molybdenum Co. LTD and China Rare Earth Holdings LTD.

Disclosure: No Positions