Though the second quarter has gotten off to a rocky, investors are turning their eyes to earnings season to continue the bull run that has defined 2012. The past few days have seen markets all over the board, as Alcoa kicked off earnings season with a bang, leading many investors to muster up optimism for the coming few weeks. Q1 of this year was the strongest opening quarter in nearly 14 years, but many feel that the good times are just about over, and that markets are due for a steep correction sooner or later. But with one of the strongest three-month spans in recent history, earnings season figures to continue the high momentum, as a number of companies likely enjoyed a strong quarter [see Free Report: Seven Simple & Cheap ETF Model Portfolios].
For those who feel that recent stock market gains will translate into positive earnings, the next few weeks will be crucial, as markets will have the potential to soar. While a correction may be in store down the line, earnings season has the potential to subdue these fears for the time being as all eyes will be fixated on some of the biggest companies in the world. Investors looking to take advantage of a possible bull-run in the next few weeks have plenty of options to choose from. Below, we outline five funds for those looking to make a bullish play during earnings season [see also How To Pick The Right ETF Every Time].
This small cap ETF is one of the most popular in the world, as it is home to over $13 billion in assets and changes hands roughly 50 million times each day. Small cap companies tend to exhibit high betas and come with a steeper risk than safer, larger funds. With that, IWM has the potential to outdo its competition in a bull run, as small cap firms tend to gain more than their peers during these profitable times. Note that this strategy works the same way in reverse, as IWM’s losses will be steep if things turn south in a hurry. For now, this ETF has boasted strong gains of roughly 9% on the year and will look to continue that streak as earnings season picks up steam.
This fund, from VelocityShares, is designed to offer inverse exposure to front month VIX contracts. When markets make a bull run, volatility and the VIX plummet, allowing this ETN to make handsome gains. It should also be noted that flat markets typically push volatility downwards, so XIV has the potential to profit even in a horizontal rut. Be advised that it is not uncommon to watch this ETF move 4% or 5% in a single trading session so investors must keep a close eye on its behavior. Strong earnings will mean strong gains in this unique instrument.
For those who truly believe that this coming earnings season will give us something to cheer about, BGU is one of the riskiest but potentially most rewarding plays available. The fund adds a 300% leverage to the large cap holdings of the Russell 1000 index, a strategy that has yielded well over 25% on the year alone. Though primarily used as a trading instrument, BGU could make for a lucrative short term hold for those who truly believe we are on the verge of marching higher.
SPHB selects its holdings from the S&P 500 by picking the 100 stocks with the highest betas. Similar to previously mentioned ETFs, this strategy will generally outperform in strong markets, but also has the potential to be devastated if the bears take over Wall Street. Currently, SPHB’s portfolio is made up of companies like Citigroup, Genworth Financial, and Morgan Stanley as the fund has a 30% tilt towards the financial sector. Look for big bank and brokerage earnings to have an especially high impact on this fund.
ONN is one of the more unique funds in the space, as its index takes long positions in risky assets while shorting safer assets. If markets make a bull run, risky assets will typically enjoy stronger gains than safer assets, allowing ONN to turn in a nice profit. Already on the year, this fund has jumped by roughly 11% as its strategy has been attracting more and more investors since its inception in late 2012.
Disclosure: Long XIV.
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