Believe In The Rally? Try These ETFs (HDV, IYZ, HYD)

Amid more challenging headlines emanating from Europe, the SPDR S&P 500

and the SPDR Dow Jones Industrial Average

are currently sporting small gains this week. These modest gains come on the heels of last week's bullish performances, which saw the two major index funds notch their best runs of 2012. Cold, hard facts remain in place that make it easy for investors to be skeptical of any scenario that indicates a rally may be afoot. Greek elections scheduled for Sunday could decide the country's Eurozone fate. Spanish bond yields remain elevated and the country is on the brink of seeing its credit rating lowered to non-investment grade status. Here in the U.S., investors are faced with the double-whammy of a poor calendar ("sell in May and go away") and deteriorating economic data. In other words, believers in more upside need to embrace high-quality ETFs with exposure to conservative sectors and asset classes. Here are a few funds that fit the bill:

The iShares High Dividend Equity Fund is already drawing

. The fund has a top-10 lineup that includes the likes of AT&T

, Merck

, Altria

and Abbott Labs

. These buoy IDV's conservative posture, along with its sector allocations. Health care leads the way at just over 29% while telecommunications and utilities garner weights of 17.9% and 15.9%, respectively. In the past month, HDV has returned almost 2.6% while DIA and SPY are in the red.

Staying with the conservative theme, municipal bonds

and that goes for the high-yield issues as well. A scant percentage, less than 0.5%, of rated bond issues default, indicating that investors are not incurring much more risk by owning HYD over a muni bond ETF that focuses on investment-grade issues. HYD yields over 5% and pays a monthly dividend.

The Vanguard Dividend Appreciation ETF, the largest U.S. dividend ETF, is not a yield play. VIG only yields 2%, roughly the same as SPY. VIG is a play on dividend growth because, for inclusion in the index it tracks, companies need to have boosted dividends for a minimum of 10 consecutive years. VIG

with an expense ratio of just 0.18% and its beta of just 0.81 is lower than SPY's beta.

Telecommunications stocks are not sexy, but the recent returns offered by Dow components AT&T and Verizon

are quite alluring. In the past 90 days, DIA has lost more the 4%, but AT&T has surged 13% while rival Verizon has jumped almost 11%. Indecisive investors looking for telecom exposure should turn to IYZ, which allocates more than 35% of its weight to AT&T and Verizon. Year-to-date, IYZ has outperformed the Dow by 130 basis points. With so much political turmoil in Europe, investors may do well to stay with a high-quality portfolio. Holding some ETFs, such as IYZ, VIG, HYD, and HDV could offer great diversification. For more on dividend ETFs, click

.