ETFs To Invest Like Ron Paul

by on December 22, 2011 | ETFs Mentioned:

As a handful of brave souls find out every four years, running for President of the United States generally involves opening up your personal life to intense examination by opponents, the media, and general public. Generally, the scrutiny focuses on personal histories–arrests, affairs, and lawsuits make for juicy reading. But being a public servant can also mean opening up your financial records to the public–especially if you’re potentially in a position to profit from insider information on regulatory developments.

A recent analysis by the Wall Street Journal revealed the unusual composition of the portfolio held by Ron Paul, the Republican presidential candidate who is known as a critic of the Federal Reserve and opponent of big government. The asset management strategies of the Texas Congressman, who is also a physician, are anything but traditional. Paul’s portfolio, which he indicated was worth between $2.4 million and $5.5 million, has little in the way of large cap stocks or U.S. Treasuries. Instead, his bets are primarily geared to perform well in the event that the U.S. economy collapses or inflation accelerates–meaning that his personal portfolio is largely consistent with his political views. 

Though Paul doesn’t appear to own many ETFs, there are a number of exchange-traded products that are consistent with his investment strategy; we outline a few of them below [for more ETF ideas, sign up for the free ETFdb newsletter].

Mining Stocks

Close to two-thirds of Paul’s portfolio are in gold and silver mining stocks, including both large diversified mining companies and smaller firms whose operations involve exploration for new precious metals. These stocks should generally perform well when the price of gold and silver rise, since that should translate into enhanced profitability. ETFs covering this corner of the market include:

  • Market Vectors Gold Miners ETF (GDX): This ETF focuses on large gold mining companies, including big allocations to several stocks owned by Paul.
  • Global X Silver Miners ETF (SIL): This ETF focuses on companies engaged in silver mining, with top components including Industrias Penoles, Fresnillo PLC, and Silver Wheaton Corp.
  • Market Vectors Junior Gold Miners ETF (GDXJ): This ETF focuses on the smaller, more speculative mining companies.
  • Global X Gold Explorers ETF (GLDX): This ETF targets companies whose operations revolve around exploring for new gold reserves, a highly risky segment of the materials markets.
[ETFdb Pro members can access the Commodity Guru ETFdb Portfolio; sign up for a free 7-day trial to see more than 30 all ETF model portfolios]

Inverse Equity ETFs

The Paul portfolio also includes minor positions in inverse stock funds designed to deliver results that move in the opposite direction of the markets. There are currently 17 ETFs in the Inverse Equities ETFdb Category, covering a wide range of domestic and international stock indexes (the ETF Screener can be used to find leveraged inverse ETFs that amplify returns on these indexes). A few ETFs that might jive with Paul’s bearish outlook on the U.S. economy include:

  • ProShares Short S&P 500 (SH): This ETF delivers daily returns that correspond to the inverse of the daily change in the S&P 500.
  • AdvisorShares Active Bear ETF (HDGE): This actively-managed ETF offers short exposure to U.S. stocks; the methodology behind HDGE focuses utilizing forensic accounting to identify short sale candidates [see Q&A With HDGE Manager].
  • Direxion Daily Total Market Bear 1x Shares (TOTS): This ETF also offers daily inverse exposure to U.S. stocks; TOTS delivers returns equal to -100% of the daily change in the

“Cash ETFs”

A significant portion of the Paul portfolio, about 15%, is simply in cash. Investors obviously don’t need an ETF to invest in cash, but those seeking to earn a bit of additional yield  might like some of the products in the Money Market ETFdb Category:

  • PIMCO Enhanced Short Maturity Strategy Fund (MINT): This active ETF features very low volatility, seeking to deliver returns greater than money market accounts. MINT charges 0.35% in annual management fees.
  • Guggenheim Enhanced Short Duration Bond ETF (GSY): This ETF is also active, and offers investors exposure to fixed income securities that are close to maturity.

Anti-Dollar ETFs

Though Paul doesn’t have any explicit bets against the U.S. dollar, his portfolio is generally consistent with expectations of a depreciating greenback. For investors who share that pessimistic outlook, there are a couple of potentially intriguing ETFs:

  • PowerShares DB U.S. Dollar Index Bearish (UDN): This ETF replicates the position of being short the U.S. dollar relative to a basket of developed market currencies, including the euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
  • WisdomTree Dreyfus Emerging Currency Fund (CEW): This active ETF from WisdomTree should perform well when the dollar depreciates relative to a basket of emerging market currencies, including the Mexican Peso, Brazilian Real, Chilean Peso, South African Rand, Polish Zloty, Israeli Shekel, Turkish New Lira, Chinese Yuan, South Korean Won, Taiwanese Dollar, and Indian Rupee.
  • WisdomTree Dreyfus Commodity Currency Fund (CCX): This ETF offers exposure to currencies of major commodity-producing economies, including the Australian Dollar, Brazilian Real, Canadian Dollar, Chilean Peso, Norwegian Krone, New Zealand Dollar, Russian Ruble and South African Rand.

Disclosure: No positions at time of writing.