By the time he unloaded his positions, DVY had dropped 8% from its peak and the fund's yield was just a scant 2.6%.

But DVY's dividends have risen now to the point where the Aliso Viejo, Calif.-based portfolio manager views it more favorably.

"There's evidence that financials are closer to a bottom at this point," Gordon said. "And DVY is yielding 4.75% now, which gives it more of a cushion to offset any further market declines."

He has also recently moved into iShares S&P U.S. Preferred Stock Index (AMEX: PFF). Gordon likes the fact it has a yield of around 7%, which is paid monthly. "Most of PFF is in financials, which really hurt it over the past year," Gordon said. "But if financials can gain momentum, this is another rather low-risk way to play a rebound in financials."

He's not ignoring energy and natural resources, though. Gordon likes to use iShares S&P GSSI Natural Resources (NYSE: IGE) for both. "To me, it has the same companies in the energy indexes. It pretty much moves in similar patterns to XLE [Energy Select Sector SPDR]," Gordon said.

Until their momentum breaks down, there's no reason to believe energy and materials won't keep working, he added. Gordon checks returns over four-, eight- and 12-week periods. He also ranks ETFs by relative strength.

Gordon balances those momentum picks with bargain-oriented ETFs. And he also invests in asset classes not covered by either for diversification purposes. Those include PowerShares Emerging Markets Sovereign Debt (AMEX: PCY) and CurrencyShares Swiss Franc Trust (NYSE: FXF).

But his best performer in the past nine months has been iPath Dow Jones-AIG Commodity Index (NYSE: DJP). So far in 2008, it has gained more than 16%.

"The key to reaching targeted portfolio return levels over time with less risk is diversification," Gordon said. "All of these ETFs and ETNs are less correlated to U.S. stocks and bonds. And they're doing relatively well from a macro view as well."

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