Oil pierces $65 per barrel. China acquires stakes in major materials companies around the globe. And investors demonstrate a willingness to bid up emerging market share prices... even with swirling doubts about how long it'll take for the U.S. to get its act together.

In fact, it is the economies of nations other than the U.S. that show the most promise. And the evidence can be found on land, in the sea and in the air.

Consider the discrepancies between the iShares Dow Transports (IYT) and funds like the Claymore Delta Global Shipping Fund (SEA) or PowerShares Global Progressive Transports (PTRP). IYT has been hesitant in its quest to hit early may heights. In contrast, SEA and PTRP are hitting fresh new peaks.

I am not recommending these specific ETFs…the volume is painfully thin. That said, it is important to recognize that you have a global transport index that is above its 200-day, long-term moving trendline, while the domestic Dow Jones Transports (as well as the Dow Industrials) is below it.

If a sustainable bull market uptrend exists anywhere, it exists in basic industries. More specifically, it exists with global companies that are engaged in the extraction, production or transportation of minerals, metals and other commodities.

While it's true that the U.S. market has climbed alongside the improved news in financials, the best ETFs over the last 3 months revolve around metals and materials used to build things. Here are the 5 best ETFs (excluding financials) on a rolling 3-month basis:

Best Non-Financial ETFs Over 3 Months

% Gain

Claymore China Real Estate (TAO)


Market Vectors Steel (SLX)


Claymore Global Timber (CUT)


SPDR Metals and Mining (XME)


First Trust Materials (FXZ)


The implications here are twofold. One, the companies involved in the production, extraction and transportation of basic materials as well as industrial metals and lumber have collectively seen their share prices surge. Two, we can credit China 's infrastructure stimulus package in addition to the Chinese consumer.

For all of the talk about rebuilding U.S. infrastructure, only 5% of our stimulus package is going to these efforts. China ? Some $300 billion of the $600 billion, or 50%, has been set aside for building its infrastructure, while another $150 billion is for rebuilding the earthquake-rattled Sichuan Province . With 3/4 of the Chinese stimulus package going to building stuff, you've seen Claymore China Real Estate (TAO), Market Vectors Steel (SLX) and Claymore Global Timber (CUT) lead the way.

On corrections, on dips, or upon serious bear market retrenchment, you'd expect these areas to get whacked pretty hard. They can be exceptionally volatile. What's more, they are entirely dependent on successful “reflation” of the global industrial cycle.

If you are pursuing the bigger reward, and would like to mitigate the risk, make sure you understand how to use stop-losses . Moreover, make sure that you're not purchasing different ETF names that are birds of the same feather ; otherwise, you will wind up owning very similar stuff!

And then there's the quaint notion of diversifying one's portfolio. I say “quaint” in jest… partly because too many folks do not understand what it really means.

In essence, lowering one's risk through diversification requires ownership of non-correlating or low-correlating assets. You shouldn't own positions that relate to heavily one another.

Herbert Mayo is a professor of finance and international business at the College of New Jersey . You probably haven't seen him on CNBC. Nevertheless, Mr. Mayo and several of his students embarked on an ambitious project to uncover ETFs that show minimal correlations to one another.

There are several major problems with Mr. Mayo's endeavor, which he freely admits. One, some ETFs have not been around more than a year or two. What's more, many of those ETFs have only been studied during the period of bear market decline. It follows that the results can hardly produce statistically relevant interpretations.

Noting the limitations, the results are still worthy of common sense validity. For example, most developed market indexes move in the near identical direction to one another; this includes the large-cap S&P 500 SPDR Trust (SPY), the iShares S&P Small Cap 600 (ITJ), the iShares Global 100 (IOO) and Japan's MSCI Tokusai Index (TOK).

In contrast, natural resources stocks in the iShares Natural Resources Fund (IGE), energy partnerships in the Alerian MLP ETN (BSR) and emerging market stocks in the iShares MSCI Emerging Market Index Fund (EEM) had much smaller relationships (i.e. correlations) to the developed stock funds mentioned above.

Similarly, currency ETFs and precious metal ETFs had the smallest relationships to broad market develop stock funds. You might say, currency ETF and precious metal ETFs had virtually no relationship with stock assets... and that goes to the heart of a diversified mix of investments.

The Japanese Yen Trust (FXY) had an inverse relationship with the Dow Jones Total US Index Fund (IYY). Meanwhile, the Powershares Precious Metals Fund (DBP) had no correlation with the iShares S&P Global 100 (IOO).

The results have somewhat obvious implications; that is, if you wish to reduce risk through diversification, you need a mix of low-correlating assets. In addition to developed market funds like the SPDR S&P 500 Trust (SPY), one might include currency ETFs like the Yen Trust (FXY) and the Swiss Franc Trust (FXF). One might also include emerging market funds like the iShares Emerging Market Fund (EEM). One might even consider gold/silver via the Powershares Precious Metals Fund (DBP).