10 ETFs To Buy For 2012

by: Chris Katje

Last year I selected five ETFs that I thought would be best to outperform the market in 2011. Since 2008, I have made a top ten stock picks article on Seeking Alpha and recently made one for 2012.The ETFs I selected in 2011 returned a loss of 8% for the year. Even though I did not beat the market with my ETF selections last year I have chosen ETFs to focus on this year. This year I selected the following ETFs as suggestions of sectors to be in for 2012. (Prices are as of 01/12/12)

EG Shares Emerging Markets Consumer (NYSEARCA:ECON)

Start: $22.55

2011: $18.95-$24.63

Top Holdings (01/05/12)

1. Companhia de Bebidas das Americ (ABV) 11.75%

2. Astra International 7.46%

3. Naspers 7.23%

Emerging market ETFs have been a hot investing trend over the last five years and now are saturating the EFT market. I think this newer one offered by Emerging Global Advisors is the one to buy for 2012. This ETF invests in between 25-30 companies in emerging countries like Mexico, Brazil, South Africa, and Chile. The four mentioned countries make up over 70% of the holdings of the ETF as of January 5th, 2012.

As the middle class rises in countries in Asia, South America, and Latin America, consumer spending will rise and the companies held by this ETF benefit. The largest holding Ambev is the largest retail company in Brazil and the largest beer company in Latin America. The ETF also has large holdings in Wal Mart de Mexico and Brasil Foods (NYSE:BRFS). Third largest holding Naspers is a small known company that holds stakes in Tencent, ishares South Africa (NYSEARCA:EZA), Facebook, Zynga (NASDAQ:ZNGA), and Groupon (NASDAQ:GRPN).

EG Shares India Consumer (NYSEARCA:INCO)

Start: $16.67

2011: $15.66-$20.55

Top Holdings (01/11/12)

1. Hindustan Unilever 7.28%

2. Colgate Palmolive India 5.78%

3. Hero Motorcorp 5.61%

This ETF invests in around thirty companies invested in the consumer sector in India. India has the second largest population in the world. The rising middle class continues to make consumer stocks in the country appealing. Large stakes in Unilever (NYSE:UN), Colgate Palmolive (NYSE:CL), and Nestle are in this ETF through Indian subsidiaries.

This ETF has a bright future in store for it and 2012 is the year that could get it going. Look for shares to hit $20 again by the end of the year.

First Trust Auto (NASDAQ:CARZ)

Start: $24.30

2011: $21.31-$31.83

Top Holdings (01/11/12)

1. Ford (NYSE:F) 8.81%

2. Toyota (NYSE:TM) 8.40%

3. Daimler 8.27%

First Trust Auto became an exchange traded fund in May of 2011. The ETF tracks the Nasdaq Global Auto Index. Ford Motor is the fund’s largest holding and was recently named one of my top ten stocks for 2012. The auto market is recovering and could be in for one of its best years in awhile.

European trouble could hurt international car sales but the car companies in this fund also have large presences in the United States and emerging markets. I believe this ETF is in for a great year and now is a good time to get in under $25.


Start: $24.88

2011: $20.21-$26.67

Top Holdings (01/11/12)

1. Visa (NYSE:V) 9.75%

2. Phillip Morris International (NYSE:PM) 9.58%

3. General Motors (NYSE:GM) 7.74%

This exotic ETF offered by First Trust invests in newly traded companies and owns the shares until their 100th day on the public market. At the time they hit their 100th day, the shares are liquidated to cash. Given the recent IPO losers from 2011 like Linked In (LNKD), Pandora (NYSE:P), and Zynga (ZNGA), you would expect the fund to be a loser. Strong performances from IPOS in 2010 have led the ETF higher.

The ETF is a great way for small investors to get exposure to IPOs without getting burned on the open market when shares collapse. The fund gives companies over two and a half years to increase from their IPO price. Many investors are not that patient and tend to sell too soon or buy at the highest prices and miss out on any potential gains. Take a look at this potential winning ETF with a nice new concept to beat the market.

Global X Social Media (NASDAQ:SOCL)

Start: $13.06


Top Holdings (01/11/12)

1. Tencent 11.04%

2. Sina Corp (NASDAQ:SINA) 10.48%

3. NetEase (NASDAQ:NTES) 9.49%

This social media fund went public in November of 2011 and offers investors to hold a basket of companies invested in connecting users on the internet. The ETF has received a lot of negative attention for being too invested in global companies and not enough domestic exposure. Some investors also worry about a bubble being burst in social media.

Besides global companies, the fund has domestic holdings like Google (NASDAQ:GOOG), Linked In (LNKD), Groupon (GRPN), Pandora (P), and Zynga (ZNGA). Zynga continued to drop in share price over the past few weeks. I wrote an article about Zynga and mentioned Zynga becoming a holding of the Social Media ETF and since then it was added as the 13th holding with a 3.29% share of the portfolio. I think Zynga is due for a bounce and this ETF offers domestic investors opportunities in many internet companies that trade on foreign exchanges. The upcoming Facebook IPO should generate buzz for a lot of the fund’s holdings and also will bring Facebook shares into this exchange traded fund.

IQ Merger Arbitrage (NYSEARCA:MNA)

Start: $25.00

2011: $21.52-$25.78

Top Holdings (01/12/12)

1. Pharmasset (VRUS) 13.45%

2. Goodrich (NYSE:GR) 10.72%

3. El Paso (EP) 9.71%

When a public announcement is made about a company acquiring another on the open market, shares generally rise substantially and close in on the acquired price. However, there is almost always a difference in price and a small amount of profit left for those willing to bet on the deal being 100% likely to close or believe the buyout price will be larger.

The fund’s number one holding currently is Pharmasset, which was announced as an acquisition of Gilead Sciences. I wrote about Gilead's acquisition recently and how it will be profitable for Gilead. Shareholders of Pharmasset already made a substantial profit and now people looking for a way to prosper from the deal have this ETF to look at as well. Pharmasset makes up over 13% of the ETF’s holdings as of today. The ETF is a risky bet as some mergers or acquisitions do not go through as planned like the one between ATT (NYSE:T) and T-Mobile (DT). If a merger does not go through as planned the ETF sells the stock and normally takes a small loss on shares. I think this concept, which copies and index, is a great ETF to invest in as companies could finally be spending their hoards of cash in 2012.

iShares Dow Jones Aerospace (BATS:ITA)

Start: $63.76

2011: $50.91-$66.88

Top Holdings (01/11/12)

1. United Technologies (NYSE:UTX) 8.87%

2. Boeing (NYSE:BA) 8.20%

3. Precision Castparts (NYSE:PCP) 6.32%

Call me crazy for picking an aerospace ETF during an election year. After all, Obama has already started to cut defense spending and will likely use this as part of his campaign during this presidential election year. I think that many of the companies in this fund are diversified enough to withstand any defensive budget cuts.

The aerospace sector on the other hand is in a bullish upswing cycle. Jim Cramer has argued that aerospace bull markets usually last for seven years. I wrote about Hexcel Corporation recently which is an airplane component maker and a holding of this exchange traded fund. The company is one of my top ten stock picks for 2012. I think Boeing could have an amazing year as well with its large backlog and new Dreamliner airplane. Don’t let military budget cuts scare you away from this ETF.

iShares Japan (NYSEARCA:EWJ)

Start: $9.13

2011: $8.83-$11.63

Top Three Holdings (01/11/12)

1. Toyota Motors (TM) 4.52%

2. Mitsubishi Financial 2.69%

3. Honda Motor (NYSE:HMC) 2.51%

Publicly traded companies from Japan are trading at all time lows. The ETF trades for 50% of what it traded at in 2000. Several financial magazines are suggesting investors place Japanese companies back into their portfolios. This exchange traded fund offers the easiest way for investors to get large exposure to the country.

I think Japan offers great international exposure and opportunity for investors looking to avoid the current European financial mess. Japan has leading technology companies that operate around the world. If looking for an investment in Japan, also consider the SPDR Small Cap Japan (NYSEARCA:JSC), which offers exposure to much smaller companies in the island nation.

iShares United Kingdom (NYSEARCA:EWU)

Start: $16.30

2011: $14.04-$19.22

Top Holdings (01/11/12)

1. Vodafone (NASDAQ:VOD) 6.26%

2. BP (NYSE:BP) 6.19%

3. HSBC Holdings (NYSE:HSBC) 6.18%

The iShares United Kingdom ETF has over 106 stocks in its fund. The United Kingdom is one of the few European countries that I think is worth looking at for 2012. The large stakes in energy companies and consumer stocks will help offset any decline in the financial sector.

The Summer Olympics will happen in London in 2012 and could bring buying opportunities in English stocks. I have a tendency to invest close to large world events like the Olympics, and World Cup, which is also why I like iShares Brail (NYSEARCA:EWZ) for the long term.

Powershares Food & Beverage (NYSEARCA:PBJ)

Start: $19.08

2011: $16.95-$20.60

Top Holdings (01/11/12)

1. Kraft (KFT) 5.12%

2. Hershey (NYSE:HSY) 5.11%

3. Kroger (NYSE:KR) 5.03%

This ETF focuses on food and beverage stocks to outperform the market. Powershares Food & Beverage currently holds thirty companies in its fund. Besides large holdings in Kraft, Hershey, and Kroger, the fund also has shares of smaller food companies like Hain Celestial (NASDAQ:HAIN) and Smart Balance (SMBL). I wrote about Smart Balance in 2011 and still love this small company.

One big reason to love this fund is the closing of Global X’s Global Food ETF at the end of 2011. Powershares offers the best ETF for investing in food and beverage companies in the United States. I think this ETF will outperform for 2012 as more consumers eat out at restaurants like McDonalds (NYSE:MCD) or switch back to name brand merchandise at the grocery store, which will benefit many of the ETF’s holdings.

Over the year it is my goal to get more involved in ETF investing. I would like to update results on this portfolio through the year and also provide detailed descriptions of

Do you think these ETFs will have a bright 2012? What ETFs are on your watch list for the year?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.