We thought it would be interesting to breakdown BofA/ML's Ten Themes for 2010 to educate investors to the power of ETFs and to further illustrate ETFDesk's WaysToPlay feature.
Bank of America Merrill Lynch's Ten Themes for 2010:
- Government balance sheet risk
- Rising taxation
- Alternative yield strategies
- Financial sector rehabilitation
- Corporate cash flow beneficiaries
- Rising global growth
- The emerging market consumer
- Commodity price inflation
- The return of active management
- Alternative energy
Now let's take a closer look at each theme. We break down each theme and suggest ETFs to match the investment strategy. We suggest checking out our Quick Find and Screener tools to perform similiar ETF searches and screens.
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Theme 1) Government balance sheet risk: ML strategists cite IMF data that "total public debt as a % of GDP will exceed 100% in advanced economics." ML thinks 10yr Treasury yields will be above 4% by end of '10.
WaysToPlay this theme: Materials equities ( XLB SPDR-Materials, UYM Ultra Basic Materials Proshares), Emerging Mkt stocks ( EEM iShares MSCI-Emerging Markets, VWO Vanguard Emerging Mkts ETF), Short 10yr rates ( PST UltraShort Lehman 7-10 yr Treasury, TYO Direxion Daily 10yr Treasury Bear 3x), intermediate term investment grade bonds ( LQD ishares GS InvesTop Corp Bond Fund)
Theme 2) Rising Taxtion: ML cites US budget deficit as well as health care reform and a second stimulus package as rationale for higher incomes taxes on both state and local levels in 2010.
WaysToPlay this theme: General obligation bonds and muni bond ETFs as well as CEFs ( NUV Nuveen Municipal Value Fund, MYD BlackRock MuniYield Fund, Inc., NPI Nuveen Premium Income Municipal Fund, NPM Nuveen Premium Income Municipal Fund 2)
Theme 3) Alternative Yield Strategies: Higher taxes chasing people out of typical dividend plays and see tax deferred strategies benefiting here.
WaysToPlay this theme: Tax advantaged strategies (HTD John Hancock Tax Advantage Dividend Income and large cap plays (IEO iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund)
Theme 4) Financial sector rehabilitation: Financials will benefit from low rates here in the US with steep yield curves elsewhere in the world. They also believe that the normalized earnings power of many financials has been underestimated.
WaysToPlay this theme: Mega cap financials in global markets ( IXG iShares S&P Global Financials)
Theme 5) Corporate cash flow beneficiaries: BofA Merrill thinks that large cash piles will be deployed in the form of M&A, dividends, and capital spending.
WaysToPlay: Companies that will benefit from capital spending, including temporary staffing companies and the industrial sector. They also like small caps in the sectors of health care and technology. ( MNA IQ ARB Merger Arbitrage ETF
Theme 6) Rising Global Growth: Global policy stimulus as well as higher capex obviously and feel the growth will be led by emerging markets.
WaysToPlay this theme: Exchange traded funds (ETFs) with exposure to both US and European cyclical plays: large cap industrials and materials ( XLI SPDR-Industrial, EXI iShares S&P Global Industrials Sector Index Fund, XLB SPDR-Materials, MXI iShares S&P Global Materials Sector Index Fund
Theme 7) The emerging market consumer
Higher savings rates in other countries as well as the revaluation of the RMB in China which they claim will make the Chinese "5% richer."
WaysToPlay: Asian banks, mega-cap multinational plays as well as emerging market forex versus the US dollar ( CEW WisdomTree Dreyfus Emerging Currency Fund, PGD Barclays Asian & Gulf Currency Reval ETN)
Theme 8) Commodity price inflation: While we have already seen strong signs of this occurring, they feel the theme plays into 2010 due to emerging market demand strength as well as supply constraints. As far as gold is concerned, ML argues that diversification in reserve currency by other central banks (particularly in emerging markets) should yield higher gold prices.
WaysToPlay this theme: Exchange traded funds (ETFs) with exposure to gold or global energy stocks ( GDX Market Vectors Gold Miners ETF, GDXJ Junior Gold Miners ETF, GLD streetTRACKS Gold Trust, IXCiShares S&P Global Energy)
Theme 9) The return of active management: decrease in market volatility will see "greater differentiation in asset price performance."
WaysToPlay this Theme: Actively managed funds and high quality stocks ( FAD First Trust Multi Cap Growth AlphaDEX Fund, QAI IQ Hedge Multi-Strategy Tracker ETF, PQY PowerShares- Active Alpha Q Fund)
Theme 10) Alternative energy: Apparently this theme will be back with a vengeance after falling out of the spotlight when oil prices crashed down from record highs. Bank of America Merrill Lynch believes that this is a long-term secular theme and that emerging market trends will help fuel this growth. Obviously, higher oil prices will drive further investment into alternatives as well.
WaysToPlay this theme: Exchange traded funds (ETFs) that give you exposure to the vast spectrum of alternatives (wind, solar, nuclear, etc): (PBW PowerShares WilderHill Clean Energy Portfolio, TAN Claymore/MAC Global Solar Energy Index ETF, GEX Market Vectors Alternate Energy ETF, FAN First Trust ISE Global Wind Energy ETF)
Of course you can track Merrill's call overtime BofA/ML : Ten Investment Themes For 2010