Three ETFs To Invest Like Marc Faber

by on August 3, 2010 | Updated August 10, 2010 | ETFs Mentioned:

With markets trending sideways for months and no end to the recent volatility in sight, many have turned to some of the world’s most famous contrarian investors for guidance in these puzzling times. One of the most popular of these investors is Marc Faber, a Swiss fund manager and the author of the popular Gloom Boom & Doom Report and one of the most famous contrarians in the world today. Faber gained immense fame and respect for advising his clients to pull out of U.S. equities one week before the 1987 crash which saw the Dow plummet by close to 23% in what is now known as “Black Monday” and has more recently predicted the most recent financial crisis and its aftermath. Unfortunately, the perma-bear has forecast more doom in our immediate future, urging investors to play it safe and consider the long-term. “The prime consideration should always be capital preservation and avoiding large losses,” says Faber.

More recently, Faber has predicted that the Federal Reserve will resort to quantitative easing later this year in order to attempt to revive the economy out of its current doldrums. However, Faber remains extremely bearish on the ability of this program to work saying that such a program only prolongs the inevitable debt contraction. “These economic policy measures would likely fail to boost economic activity in the US but could support asset markets” he added. Faber also believes that the massive money printing by most central banks will eventually devalue currencies and create global supply shocks as people struggle to adjust to a new system and has called for the only bond exposure for investors to be buying “a $100 US bond and frame it to teach your children about inflation by watching the US bond value diminish to almost nothing over the next 20 years” said Faber in a recent quote [also see Five Treasury ETFs To Watch As Yields Approach Record Lows].

While many investors are bearish on the global economic outlook, Faber has taken things to the extreme, calling for investors to buy a self-sustainable farm in the middle of nowhere with extreme levels of protection in order to help protect against a financial apocalypse in which the world grinds to a halt. Thanks to these dystopian predictions, Faber has earned the nickname “Doctor Doom” among investment circles and has gained a cult following among contrarian investors due to his steadfast belief in his predictions over the future of the economy [also see Five ETFs To Own During The "Great Deflation"].

In order to protect himself and his family from what he believes to be a depression worse than the one in the 1930′s, Marc moved his family to small city of Chiangmai, in northern Thailand to ride out this dark period in economic history. Despite his relative seclusion from the major financial centers of the world, Faber has managed to get on TV more than a few times in the past couple of years in order to offer his warnings for investors who are concerned about the state of the global developed economies. Thanks to these numerous interviews, we have compiled a list of three ETFs which we feel closely align with Marc Faber’s investment strategy which we have detailed below.

ProShares UltraShort Lehman 20+ Year Treasury Fund (TBT)

Faber has been a long-time bear on the U.S. economy believing that the country will soon be choked to death by its ever-expanding debt load. He also believes that the U.S. is on a collision course with quantitative easing to the point where it destroys the U.S. economy leaving bond investments at a fraction of their original value, calling the securities “worthless confetti“. Faber continued “at some point people won’t want to be compensated at two percent” in bonds, and will put money into stocks, “Government bonds will not be a good investment for the next 10 years.” A great way to play this idea is with TBT, a fund which tracks the Barclays Capital U.S. 20+ Year Treasury Index (-200%) which measures twice the inverse performance of U.S. Treasury securities that have a remaining maturity of at least 20 years. This fund is likely to be among the biggest beneficiaries from a move from bonds to stocks since longer-term securities are generally the most sensitive to interest rate moves. The bond fund is double short an index which has all of its assets maturing in at least 20 years while maturities stay in the 3%-6% despite their extremely long time horizon. This suggest that if economic events take a turn for the worse and investors demand higher rates from U.S. T-Bonds, this fund has a lot of room to run higher [also see Ten ETFs To Own If (When) The Fed Raises Rates].

ETF Securities Physical Swiss Gold Shares (SGOL)

Dr. Doom views gold as the ultimate safe-haven and a way to store wealth when governments are out to debase their currencies in order to make massive debt payments easier to stomach. Although not the biggest fan of precious metal ETFs, we feel that Faber would be able to tolerate this fund due to its holdings policies and the location of the vaults in Faber’s native (and extremely stable) Switzerland. SGOL will hold all of its physical gold bullion in secure vaults in Zurich, Switzerland, offering valuable diversification benefits to investors. “If you want to invest in gold, currently the only ETF options are funds that house their gold in the U.S. or in the UK,” says William Rhind, Head of Sales and Marketing for ETFS Marketing. “The feedback that we’ve received from investors is that they would like to be able to hold their gold in Switzerland for a number of different reasons including diversification of geography, vault, custodian and issuer.” SGOL charges an expense ratio of 0.39% and has performed well so far in 2010, but has sunk in recent months as demand for gold has waned. The fund is up 19% over the past 52 weeks but has posted a loss of 2.5% over the past month [also read Why You Need A Swiss Gold ETF].

Market Vectors Agribusiness ETF (MOO)

One sector which has particularly caught Faber’s eye is the farming and agribusiness sector which Faber believes is poised for a major bull market. Faber has likened investing in agriculture today to investing in oil in 2001 or 2002 when prices were at roughly one fourth of their current level. He believes so strongly in the promise of agriculture investing due to recent trends in the industry as well as population trends in the world. Farming productivity has fallen by almost half since 1990 and that there will be one billion more people on earth in 2012 than there were in 2000, putting even more strain on global markets and food supplies. This strain will create a greater demand for agricultural equipment and supplies which are the key products of the holdings of MOO. The fund tracks the DAXglobal Agribusiness Indexwhich provides exposure to publicly traded companies worldwide that derive at least 50% of their revenues from the business of agriculture. The fund is heavily invested in international securities which make up close to two-thirds of the fund’s total assets with the largest individual country weightings going towards the United States (35.9%), Canada (12.8%), and Singapore (12.7%). Some of the fund’s top holdings include Singapore’s Wilmar International (8.7%) which is heavily focused on palm oil and soybeans, the world’s largest potash producer the Potash Corp of Saskatchewan (8.0%), and seed giant Syngenta AG (7.7%). The fund is up  just 13.1% over the past 52 weeks and has produced a loss of 2.6% so far in 2010 as commodity prices have stabilized in much of the agricultural sector [also see Agribusiness ETFs Head-To-Head: MOO vs. PAGG].

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Disclosure: No positions at time of writing.