At this time of the year, you can count on gurus and pundits to deliver an avalanche of two types of articles. The first are predictions for 2013 that I’ll admit have a chance of becoming true. The second are lists of what markets performed best during the year suggesting that you better jump on the bandwagon or you’ll miss the boat. If you follow this strategy, the following ETFs would be on your buy list:
- The Dow Jones U.S. Home Construction Index Fund (ITB), up 80%.
- The usual grouping of emerging markets that produced eye-popping returns: for this year, Turkey (TUR), up 61.8%, the India Consumer ETF (INCO), up 55%, the Philippines (EPHE), up 48%, and Poland (EPOL), up 39%
- The Market Vectors Biotech ETF (BBH), which jumped up 51%.
Now some of these ETFs may continue to surge in early 2103 but chances are greater that they will level off or pull back. So having an independent streak as deep as the Grand Canyon, I suggest you take a different tack. Look for the laggards that have been beaten down.
While gold investors have done pretty well this year, gold explorers and miners have been in a funk. The problem is rising production and operating costs that has driven the Gold Explorers ETF (GLDX) down 37%. The gap between gold prices and gold mining shares is at an all time high and will likely narrow. You could do better albeit with greater risk, than this ETF by investing in gold mining stocks that have the lowest production and operating costs.
But coffee may even be a better bet than gold miners. Due largely to a bumper coffee crop in Brazil, the Dow Jones-UBS Coffee ETN (JO), was down 43% in 2012. What the weather will be like in Brazil in 2013 is beyond me but I do know that demand for coffee is steadily rising throughout the world.
My coffee habit really goes back to my student days in Japan. Imagine my surprise when I found more coffee shops per block in Tokyo than bars in my hometown Milwaukee.
I had thought that Japan, like much of Asia, was a land of tea drinkers, Turns out that with westernization and rising incomes, Japanese came to love coffee provided it was laden with milk and sugar.
Today, Japan’s per capita coffee consumption is 75% of America and still trending upwards. From 1980 – 1995, coffee consumption in Japan was up 300% and in South Korea a stunning 1,800%. Taiwan’s coffee consumption has quadrupled over just the past four years.
Then there is China, a country that is at a very early stage of this promising trajectory of growth. The upside potential for an explosion of demand can be based on one fact. My three cups of coffee a day is more than the average Chinese drinks in a year!
So my advice is to take some winnings off the table and add a dash of coffee and gold miners to your portfolio.