Let's recap recent events

Let me get this straight: The Fed cuts interest rates. The Dow jumps up 128 points. The next day, the word spread that it probably won’t have to cut rates again, and the Dow plunges a record-breaking 262 points. Then, the day after that, employment figures come out higher than expected, and the Dow shoots up 60 points, before it shoots down 60 points. Spastic, wouldn’t you say?

I suppose there’s some kind of logic in this somewhere but right now, I can't figure it out. And apparently neither half of the so-called Wall Street analysts who are flailing around like Kindergarteners learning to swim in the deep end.

Think back to a year ago, the general economic mood was pretty much the same as it is today: A bit gloomy with two real possibilities hovering on the horizon. The first being recession and the second, its long lost brother named inflation. And yet, what a year we have had! My SPDR S&P 500 Index (SPY) is up 8.0%. iShares Lehman Tips Bond (TIP) is up even more, 8.4%. The GDP grew in the third quarter, retail sales forecasts are up and unemployment rolls are growing.

So where is all of this collateral damage coming from?

Yesterday’s leaders, value stocks and junk bonds are being run up against the wall by growth stocks and inflation-protected Treasury bonds. This transition is going to be an on-your-bumper, yellow flag spin-out kind of race ending in smoke filled, anxiety-inducing trading sessions. Strap on your helmets and fasten your seat belts because growth stocks are back in the lead.

See, when the economy is firing on all cylinders, cyclical stocks are red hot. But as it starts to cool down, some investors inevitably get nervous, sell out of cyclicals, and look for safety in the type of earnings growth stocks are known for. Yes, in a shaky economy, already nervous investors don’t want to take any more chances than they need to and start buying big name growth stocks with solid earnings track records.

Without a doubt, this seismic shift is the most extreme among big caps, where growth has been fairly constant, but value has spun out tumbling from annualized gains of nearly 15% to 6%.

Yes, the case for big-cap growth is clear as a Talladega morning, but choosing the ETF that delivers can be a lot like driving on thin ice.

3 ETFs in Perfect Pole Position

Now, I probably don’t have to tell many of you that ETFs are great. Some are even downright spectacular. But believe it or not, most are mediocre.

In fact, out of the more than 525 ETFs available today, only ten have what it takes to make it into the ETF Insider portfolio. No—that’s not a typo. I screen through more than 500 ETFs on any given day to focus on the few that are worthy of my attention (and my money…)

So, as I started narrowing down the playing field, I found three strong growth contenders who’ve made my cut. These three large-cap ETFs have started to take full advantage of Wall Street’s burn out, and have begun to refuel the market with some amazing returns on their own.

The Crowd Pleaser:  As one of my favorite revenue drivers, this ETF has been around the block for some time now with an experienced track record. I recently gave it even more exposure in my Growth and Growth & Income Model Portfolios. This ETF has avoided a big weighting to financial stocks which have been dragging down other ETFs over the past few years.

The Rookie Driver: Much less volatile than some of its competitors, indexing purists would easily bet on this ETF to take the lead as a steady performance chaser. This rookie is more neutral on the track and in its sector weightings which makes it a perfect top contender to take over the lead as ETF investors race into 2008.

The Come-From-Behind Contender: ETF investors racked up average gains of 3.8% in October, greatly outperforming the broad domestic stock market. But U.S. technology stocks did make a statement, with my “Come-From-Behind-Contender” shooting up 7.0% This ETF is clearly a leader among its peers and tracks its benchmarks very carefully.

It’s Time to Start Your Engines

September was the best month by far for ETFs, with our Model Portfolios delivering road-burning returns of 5.0% for Growth, 3.8% for Growth and Income and 3.4% for Income. But the race isn’t done yet—far from it. That’s why if you have any cash sitting idly by on the sidelines, I urge you to invest heavily in these three portfolio drivers. Yes, it’s going to be a long and hard race going into 2008, but with these three ETFs, you’ll avoid any pit row pitfalls.

When you join Tim Middleton’s ETF Insider, you’ll put America’s leading ETF expert to work for you! Tim Middleton’s model portfolio has marched ahead at a market-beating clip of 7.1% in the past four months, versus the S&P 500's 1.9% gain. Get the names of these three industry-leading ETFs along with his whole Buy List in the November issue with your RISK-FREE trial subscription to the ETF Insider today! You simply can’t afford to miss out!