The Smartest ETFs for a Stimulus-Addicted World
NEW YORK ( ETF Expert) -- Half of the largest U.S. corporations are missing revenue targets this earnings season.
Non-cyclical sectors from health care to consumer staples are beating the pants off economic growth standouts like technology and energy.
Trading volume is noticeably larger on down days than on up days. Treasury bonds are notching new 2013 peaks on safe-haven purchasing. Yet, the S&P 500 is currently within a percentage point of an all all-time high.
I continue to recommend less aggressive dividend income plays like WisdomTree Equity Income (DHS). Its 3.6% yield offsets some of the downside risks that have become parcel and part of second quarter trading. Moreover, its concentration in non-cyclicals (e.g., telecom, pharmaceuticals, staples, utilities, etc.) reduces some of the volatility associated with high-volume selloffs.Outside of the U.S., China's manufacturing segment is trending in the wrong direction, with preliminary estimates showing marginal expansion. Similarly, Japan's economic prospects have been so grim, money printing and yen devaluation have been deemed the only path to restoration. Also, with the eurozone region contracting at a rapid clip, world stocks that are tied to growth (e.g., materials, energy, consumer discretionary, etc.) are unlikely to thrive. My prescription here is quite similar to the one for the U.S. Stick with ETFs that focus on non-cyclical segments that are less tied to the global economic slowdown. These exchange-traded trackers still work because worldwide central bank stimulus means ultra-low interest rates, and ultra-low interest rates mean investors will covet safer equities with dividend cash flow. Two of the better ones include WisdomTree Global Equity Income (DEW) and iShares Emerging Market Low Volatility (EEMV). I believe the current rally will fall short of many bullish prognostications. More specifically, I expect selling activity to increase substantially whenever the S&P 500 approaches 1600. In fact, it is fair to expect a 5% to 7% pullback on almost any turn of events, from a series of disappointing earnings to a "Sell in May" mentality to bank instability in Europe. The mere fact that depositors in Cyprus witnessed confiscation of those deposits still has the potential for Italian and Spanish customers to reconsider where they do their banking. In other words, aggressive short-sellers may wish to take a hard look at shorting iShares Europe Financials (EUFN). Not only is the series of lower lows attractive on a technical basis, but I do not believe we'll see Spanish bond yields at these 2-year lows for long. Another possibility? Pair-trade investors might go long on WisdomTree Europe Hedged Equity (HEDJ) while simultaneously shorting EUFN. Follow @etfexpert This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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