Pacific Park Financial Inc. | Jan 04, 2013 02:14AM ET
There’s a tendency in the financial media to wrap-up calendar years with a focus on the “winners” and “losers.” Inevitably, a large number of unsophisticated investors will allocate money to the so-called best performers, while avoiding any commitment to the underachievers.
Herein lies one of the biggest mistakes that ETF enthusiasts make. Specifically, they view success through a prism of calendar-year data, ignoring genuine momentum found in relative strength or price ratios or even May-over-May performance. In fact, a calendar-year obsession has enormous potential to mislead.
Keep in mind, it’s not uncommon for worst performers in one year to reverse course entirely. In 2011, iShares MSCI Turkey (TUR) lost a staggering -36.6%. In 2012? The iShares MSCI Turkey Fund (TUR) was one of the best unleveraged ETF performers with an eye-popping 65.6% gain.
Recognizing that 2012 “losers” may reverse course in 2013, I identified 3 ETF spaces that may do just that. Each of the asset areas discussed below under-performed broader large-cap equity benchmarks (i.e., S&P 500, MSCI All World) on a year-over-year basis. By the same token, each demonstrated greater relative strength than these benchmarks over the last 5 trading sessions.
1. Pipeline MLPs. Whether aggregating individual companies via exchange-traded fund or exchange-traded note, pipeline master limited partnerships offer something that few investment types can: about a 5% or better yield with about a 5% average company growth rate. And yet, 2012 was brutally unkind to the pipeline MLPs/energy sector due to falling demand, falling prices, regulatory fear/burden and fiscal cliff dividend tax uncertainty.
As recently as 12/30, JP Morgan Alerian MLP ETN (AMJ) was below a 200-day trendline. A few trading days later (1/3/13), with the “cliff resolution” removing dividend tax uncertainty, things look very different.
2. Strategic Metals and Industrial Metals. Year-over-year, SPDR Metals and Mining (XME) is down -5%. For believers in hard assets, that’s a particularly jagged pill to swallow. And yet, ever since China announced a steadfast commitment to support 7.5% GDP going forward, accompanied by several months of manufacturing segment expansion, materials and metals have moved steadily higher.
In truth, China is more likely to grow at 8% and its factory sector hasn’t been this strong since May of 2011. With the world’s largest economy being the primary engine for global growth, and with demand for industrial/strategic metals surging, look for the possibility of enhanced capital appreciation. Market Vectors Strategic Metals (REMX) and Market Vectors Steel (SLX) are worthy of placing on your watch list.
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