Top ETFs to Own Now:
Gold ETF, Commodity ETF, Water ETF, and
Asia ETF Picks to Add to Your Portfolio Today
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In a 2008 joint survey of investment professionals conducted by State Street Global Advisors and the Wharton School of Business, 67% characterized exchange-traded funds (ETFs) as “the most innovative investment vehicle of the last two decades” and 60% stated that ETFs had “fundamentally changed the way they constructed investment portfolios.”
The actions of investment professionals speak just as loudly as their words; ETFs are the fastest growing segment of the mutual fund industry. Between 2001 and 2008, US-based ETF assets grew at an astounding compounded rate of 44% per year! The global ETF business has grown into a more than $1 trillion industry. Although still smaller than the $19 trillion in traditional mutual fund assets, ETFs may one day surpass mutual funds given their inherent advantages.
What is it about ETFs that have taken the investment industry by storm? While both ETFs and traditional mutual funds offer investors the benefit of “instant diversification” at a relatively low cost, there are at least six advantages ETFs have over traditional mutual funds:
Lower Management Fees
Lower Fund Transaction Costs
Direct Commodity Exposure
Portfolio and Price Transparency
Lower Minimum Purchase
Trades Like a Stock
Understanding the general advantages of ETFs is only half of the battle, however. The question remains which industry sectors and which specific ETFs within those sectors are most likely to become the top ETFs for this year and beyond. Not every ETF is inexpensive and some track strange, custom-built indexes that include unexpected (and unwanted) securities. You need to know the difference between the ETFs that should be avoided and which are the true gems that must be bought.
Based on my in-depth analysis of industry trends, I have uncovered the five best ETF investment themes for the next 12 months: (1) water ETF; (2) general Asia ETF; (3) Dim Sum Bonds ETF; (4) commodity ETF; and (5) gold ETF. In my FREE report, I reveal the specific ETFs within these sectors primed to deliver the largest out-performance potential.
Keep reading to discover the best water ETF, Asia ETF, Dim Sum Bonds ETF, commodity ETF, and gold ETF to own now!
Top Water ETF —
Well Diversified ETF in Hot Sector
As the global population continues to swell, supplies of clean drinking water have grown increasingly scarce. Although 70 percent of the Earth is covered in water, only 3 percent of this is fresh water. Much of this fresh water is locked in ice caps, inaccessible or unusable, leaving only 0.3 percent available for human consumption.
Given the dire nature of the situation, expect a drastic increase in infrastructure spending in upcoming years, with an emphasis on water-related projects.
My favorite water ETF is well positioned to take advantage of this global trend, holding a portfolio of 32 companies that manufacture pipes, pumps and other water infrastructure equipment, as well as water utilities and treatment outfits.
Top Asia ETF —
Broad Foreign Exposure at a Bargain Price
Economic growth is shifting from the developed economies to the developing ones, and Asia is leading this transformation. Unlike the U.S. and Western Europe, Asia isn’t facing a painful de-leveraging process; banks, consumers and companies enjoy low debt levels. Ignoring the dynamism of Asia will ultimately stymie your portfolio’s growth. Its viability is becoming clearer by the day; the US and other indebted, slow-growing economies simply can’t offer the returns to which growth investors are accustomed.
Asia can easily grow three times faster than advanced economies. The region has entered a cycle of capital investment, infrastructure spending and domestic consumption that’s still in its early stages. Ignoring Asia outright will prove to be one of the biggest mistakes an investor can make.
This Asia ETF provides exposure to all of the key Asian trends, from the infrastructure build-out in China and India to the rise of the Asian consumer and the maturation of regional financials.
My top Asia ETF to own now offers broad Asia exposure while charging an expense ratio of just 0.72 percent, handily beating comparable mutual funds.
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Top Dim Sum Bonds ETF —
An ETF Capitalizing on a Booming Asset Class
Most people think of dim sum as the Chinese teatime meal that consists of dumplings and other snacks served by waiters pushing steam carts around the dim sum parlor. But for global investors, the term “dim sum” also refers to the offshore Renminbi (RMB) bond market. The currency in which these bonds are denominated is also referred to as Chinese Offshore Yuan (CNH). This fast growing market was established in 2007, but didn’t take off until last year.
Although the Chinese government has issued some dim sum bonds, the market largely comprises bonds issued by corporations from China and abroad. China-based issuers dominate the market, but recently, foreign companies have also been increasing their presence. Indeed, companies like Caterpillar (NYSE: CAT) and McDonald’s Corp (NYSE: MCD) have even issued dim sum bonds.
The rapid accumulation of RMB deposits in Hong Kong is largely fueling the fast growth of the dim sum market, as investors buy dim sum bonds to earn a better return on their deposits. My favorite Dim Sum Bonds ETF is still quite small, but I expect it to quickly grow in assets matching the equally rapid growth of the Chinese economy.
Top Commodity ETF —
Well-Diversified and Tax-Advantaged
As the global economic recovery gains steam, commodities prices are once again on the rise. China’s insatiable demand for vital resources is one factor driving commodities prices higher; the country remains the world’s workshop, and its government continues to buy up resources around the global.
Our top commodity ETF is the best way to gain exposure to these trends. Currently weighted 25 percent towards industrial metals, 25 percent to agricultural commodities, 11.8 percent to precious metals, 5 percent to livestock and 32 percent towards energy, the fund reaches into every corner of the commodity market.
Technically structured as an exchange-traded note (ETN), this commodity ETF closely replicates the performance of its underlying index with little tracking error. The ETN structure offers tax advantages relative to commodities funds that use futures or structured notes to track their indexes.
My top commodity ETF for the next 12 months should be an important part of any portfolio, both as a short-term play on the continued global recovery and as a long-term bet on further growth in emerging markets.
Top Gold ETF —
A Low-Cost Hedge for Your Portfolio
The combination of gold’s wonderful physical properties and its limited supply explain why it has been used as an absolute store of value the world over for many centuries. Gold is a great hedge against inflation and economic crises. The values of fiat currencies and stock and bond markets are based on confidence. When confidence is shattered, only the value of gold remains.
Unlike a gold ETF that uses derivatives to gain gold exposure, every share of this Gold ETF is backed by about one-tenth of an ounce of physical gold held in vaults buried deep below the streets of London.
And despite all of the convenience the fund offers, it has one of the most reasonable expense ratios in its category—just 0.4 percent. The average fund in the category charges at least 1 percent. We recommend that investors allocate about 5 percent of their portfolio to my top gold ETF.
To get the full details, download your FREE copy of Top ETFs to Own Now: Gold ETF, Commodity ETF, Water ETF, and Asia ETF Picks to Add to Your Portfolio Today, right now and find out the names of each of these Top ETFs!
With my sincere best wishes for success in your ETF investing,
Senior Investment Strategist, Personal Finance
7600A Leesburg Pike
West Building, Suite 300
Falls Church, VA 22043
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