10 ETFs to Buy and 10 to Sell Short

by: Hedgephone
Thanks to the internet, global equity investing is much easier. Back when Jim Rogers and George Soros were running the Quantum Fund, they likely had to fly to foreign countries to set up bank accounts to invest in places like South Africa, Russia, China, Brazil, etc… Today, investing all around the world can be done from a single online U.S. brokerage account with the use of country specific ETFs and ADRs from all across the globe. I agree with the argument that the internet makes the stock market much more efficient over time, but I also feel that stock markets usually gyrate above and below equilibrium valuations based on fear and greed meaning that investors who properly value global stock markets on a relative basis can make money by going long and short on various country-specific ETFs.
Here are 10 ETFs for investors to research:
RJI – The Rogers International Commodity ETN is a fund that provides wide diversification in commodities and should be owned over the longer term unless drastic change takes place in Washington – ie: Don’t sell unless Ron Paul is elected President.
RSX – Russia’s economy is over 50% oil based and the RSX at 8X earnings is likely worth the fraud risk if oil keeps skyrocketing.
EWU – At least England understands the problem is debt, not just GDP – with tonight’s 10% rise in oil, expect US GDP to fall by around 3% from predicted 2011 levels.
EZA – The South African Index is a good hedge against inflation because of the country’s large mining interests and commodity reserves.
EWA – South Korea is relatively attractive at 11X earnings.
SLV – Silver is still dirt cheap, and investors who believe that the dollar (and all other paper currency) is doomed can use the SLV for a hyperinflation hedge.
GLD – The Gold ETF is a huge holding for George Soros, David Einhorn, and John Paulson, which combined with hyperinflation policies makes the GLD a great long term investment.
DBA – The Deutche Bank Agricultural ETF is a good play on soft commodities and now that most commodities are heading toward backwardization a fund like DBA could be a great longer term hedge against Zimbabwe-style central banking policy.
PSLV – The Sprott Physical Silver Fund is the best hedge against government lunacy that I have discovered to date.
AGQ – The double long Silver ETF is a good play for investors that really understand Macro Economics and have a penchant for volatility.
The following 10 ETFs appear to be overvalued or risky from a bottom-up perspective:
IWM – The Russell 2000’s absurd bubble valuation is not sustainable and the index is due for a major correction.
IWO – The Russell 2000 Growth Index is similar to the IWM only the fund is far more overvalued.
EEM – The emerging markets are heading toward bear market territory so investors looking to buy FXI or RSX should hedge their risk with EEM put options.
QQQQ – The Nasdaq 100 is now overvalued and overbought and due for a serious haircut.
TYH – The triple leveraged Russell 1000 technology index reads like a who’s who of overvalued bubble names.
TNA – The triple leveraged Russell 2000 index fund is a great short as the leveraged funds seldom achieve their target returns over a longer term time period because of leverage costs, slippage, etc…
SPY – The S&P 500 is trading at a 24 CAPE PE (PE 10) which is the highest at nearly any point in history besides the Great Depression.
MDY – The Midcap indices are overvalued with the MDY’s forward PE ratio at a 40% premium to the SPY – and for those who look at forward PEs remember the market was “cheap” in the summer of 2008 with a forward PE of around 14 (too bad the guesstimate were completely and utterly wrong).
DIA – The Dow is a bit less volatile and can be used to sell call options against as a hedge.
IWF – The Russell 1000 Index is almost as overvalued as the Russell 2000 index, so keep an eye out for a good shorting/hedging opportunity.
Disclosure: I am long RSX, PSLV, SLV, GLD, EZA, DBA. I am short IWM, IWF, TYH, MDY, QQQQ, TNA DIA