Fabulous first week of trading aside, there are plenty of reasons to rein in one’s enthusiasm. For example, even if Europe unites in a comprehensive effort to quell its credit crisis, the region is still likely to battle economic contraction for most of 2012. Will this adversely affect U.S. earnings? And how difficult will the European conundrum be for export-oriented emergers?
In spite of Europe, slow growth in the U.S. and slowing growth in the emerging nations, there will still be demand for energy. And with ongoing uncertainty in the oil-producing countries of the Middle East, one should not be surprised by price spikes in Brent crude oil.
Consider the following: Extraordinary changes to European leadership and slower growth in Asia caused iPath DJ Total Commodity (DJP) to lose -13% year-over-year. Yet the U.S. Brent Oil Fund (BNO) gained 23% over the same period. In other words, ”black gold” may still rise in price, even with geopolitical uncertainties.
That’s not to suggest one should only consider single commodity ETFs for 2012. Pharmaceuticals have rebounded from 2009-2010 legislative uncertainty to become a bull market favorite. Not only is drug demand less sensitive to economic cycles than technology and consumer discretionary items, but aging baby boomers provide plenty of incentive for drug companies to invest heavily in R&D. Look to PowerShares Dynamic Pharmaceuticals (PJP) or iShares DJ U.S. Pharmaceuticals (IHE) for diversified “pharma” exposure.
There’s still other ways to approach this trend. The iShares NASDAQ Biotechnology Fund (IBB) made 11.7% in 2011 - far better than the S&P 500’s 0%.
At the same time, don’t fall victim to a myopic proclamation that the drug industry will always outperform. It tends to perform better in bearish periods or flat periods; in fact, when fear creates greater havoc for economically sensitive segments, drug stocks often look more appealing. Yet in the current bull market (3/9/09-Present), the S&P 500 SPDR Trust (SPY) proved to be the victor.
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Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.