These ETFs Could Validate Risk On

As investors ponder what the next moves by global central banks will be, they might be pondering something else: The veracity of the risk on trade. To start the year, risk on was in style as emerging markets equities and high beta sectors helped lead the broader market higher. That trend soon gave way to the cold realities of Europe's sovereign debt crisis, China's slowing economy and the fragility of the U.S. economic recovery. As fears regarding those issues and others set in, investors sought shelter in some predictable places. Corporate bonds and at the sector level, consumer staples, telecommunications and utilities. While those trades have worked and are now crowded in the eyes of some, there have been signs recently risk on is starting to creep back into the market. If that is in fact the case, the following ETFs will give investors clues about just how strong the risk on trade really is. Market Vectors Oil Services ETF OIH The Market Vectors Oil Services has not only been sturdy in recent days, the ETF has jumped over five percent in the past week and is now the only high beta sector ETF showing signs of leadership, according to Market Montage. From its March peak to its July low, OIH plunged nearly 25 percent. The silver lining there is that decline means plenty of high quality oil services names are now trading at compelling valuations. Given the oil services sector's correlation to oil prices, OIH is a perfect ETF to track when searching for answers about the return of risk on. iShares MSCI Brazil Index Fund EWZ Much maligned, Brazil and EWZ have had a rough go of things this year. Amid slowing economic growth and a political environment that has given international investors pause about Brazil, EWZ has suffered. The ETF's substantial allocations to high-beta sectors have been a problem as well. Combined, financial services, materials and energy names account for 62 percent of EWZ's weight. Given that factor and Brazil's dependence on China to purchase many of its raw materials, EWZ is an important gauge of risk on sentiment. On that note, EWZ has gained 6.2 percent in the past week. EGShares Emerging Markets Metals/Mining ETF EMT The EGShares Emerging Markets Metals/Mining ETF will not win any volume contests, so the fund's inclusion on this list might come as a surprise to some. However, the combination of emerging markets and materials under one umbrella means a risk on environment should be a feast for an ETF like EMT. Risk off means famine. EMT's country roster speaks to the fact that this fund is a stealth way of gauging risk appetite. South Africa, Brazil, China and Russia combine for about 69 percent of EMT's weight. Downtrodden Brazilian mining giant Vale VALE is EMT's top individual holding with an allocation of 10.2 percent. Another example of an ETF that has recently started showing signs of life, EMT is up 4.7 percent in the past week. PowerShares NASDAQ Internet Portfolio PNQI The PowerShares NASDAQ Internet Portfolio is another ETF whose volume belies its utility as a barometer of risk appetite. PNQI is the very definition of a momentum ETF. Or at least an ETF heavy on a momentum stocks. eBay EBAY, Amazon AMZN, Priceline PCLN, Google GOOG and Baidu BIDU combine for over 42 percent of this fund's weight. Those high-flying names are not the type of stocks investors run to if they are feeling pensive about the market's current state of affairs. Bolstering the case for PNQI as a risk on gauge is the wide gaps in performance between this ETF and the PowerShares QQQ QQQ, the Nasdaq 100 ETF. In the past month, the two have performed almost inline with each other, but over the past week, the gap is far wider in PNQI's favor. Over other important time frames, there are also wide chasms between the two funds. QQQ usually comes out on top, but if PNQI starts outpacing its larger cousin to the upside, that could be a sign that risk is being embraced again. For more on fast-moving ETFs, click here.