Stock ETFs for the 2014 Battle Against Global Deflation
For example, WisdomTree Hedged European Equity (HEDJ) is above its 200-day moving average. Mario Draghi and the ECB's ongoing need to battle deflation will mean more stimulus for the embattled region. Central bank intervention continues to be a bona fide boon to investors. Moreover, European equities trade at 20% discount to U.S. counterparts. While U.S. stocks are breaking records, European stocks remain roughly 35% below all-time peaks. For all of these reasons, I expect HEDJ to outperform the majority of the stock ETF field on the upside.
In Japan, I expect the monetary policy authorities to get increasingly bold. After all, they are already heralding their recent achievements in confronting deflation. Yet, the accomplishment of 1% inflation pales in comparison to its 2015 goal of 2%. With a looming sales tax to sap some of the strength of consumers, expect the Bank of Japan to print its yen like there's no tomorrow.
That should, in turn, send WisdomTree Hedged Japan Equity (DXJ) on another remarkable rise at some point in 2014, in much the same way that DXJ skyrocketed from October 2012 to May 2013.
Finally, in my money management practice, I am not overly concerned with an interest rate spike. Janet Yellen, chairwoman of the Federal Reserve, still recognizes the fragility in the U.S. economy and the debilitating nature of deflation. That said, the Fed feels pressure to walk the tightrope between battling deflation and seeking to keep interest rates in a relatively tight range. A huge yield spike in 2014 is unlikely. It follows that I will stick with U.S. corporations and U.S. stock ETFs that are most capable of handling any deflationary scares. Whereas 2013 may have had a slightly negative impact on dividend growers and dividend yielders due to a rapid spike in interest rates, a more stable rate environment will be kinder to companies that do not necessarily wither in the face of deflation.
Divided growers and dividend yielders provide a measure of comfort in their coupon-like payments to shareholders, and these companies view dividend cuts as a last resort. I like both Vanguard Dividend Appreciation (VIG) and Vanguard High Dividend Yield (VYM). All of the above-mentioned stock ETFs, hedged foreign equity and domestic equity are demonstrating strong uptrends. Yet, I am not a buy-n-hold-n-hoper. If a price on one of my ETFs hits a stop-limit loss order, I may sell all or a portion of the asset. I may do the same if the price falls below a long-term, 200-day moving average. Follow @etfexpert This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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