5 ETF Plays For Doomsday Predictions

by on April 4, 2012 | ETFs Mentioned:

Investors have seemingly brushed aside looming debt woes on both sides of the Atlantic ocean as improving growth expectations have helped pave the way higher for equity markets around the globe. Bullish momentum has undoubtedly prevailed on Wall Street thus far in 2012, although many are fearful that a steep market correction is just around the corner. Economic data releases have been encouraging over the past few months, however weakness in the housing and labor markets continues to be a major drag on the recovery efforts at home [see also Doomsday Special: 7 Hard Asset Investments You Can Hold In Your Hand].

The million dollar question that investors are asking themselves is whether to jump aboard the bull-train or stand back in
anticipation of a derailment in the foreseeable future? Remember that the trend is your friend; calling the top on a bull market can be wildly profitable, however, more often than not, investors are better off buying on the dip rather than making speculative bets. Nonetheless, bearish sentiment is still looming and profit taking pressures could strike unexpectedly.

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In a recent article at MarketWatch.com, author Wallace Witkowski takes a closer look at what prominent doomsayers are predicting for Wall Street. The article covers economic commentary and recommendations from five well-known investing gurus with a proven track record.

As such, below we highlight five ETFs that coincide well with the doomsday predictions outlined in Witkowski’s article:

1. ProShares UltraShort Barclays 20+ Year Treasury (TBT)

Peter Schiff, perhaps best known for calling the most recent financial crisis, is anything but optimistic when it comes to fixed income investments. In fact, he believes that bonds are the worst investment one could make right now, seeing as how this inflated asset class has yet to be crushed. Schiff is bearish on holding cash as well, given the looming threat of inflation, which he believes is inevitable.

TBT offers a way for investors to make a bet against long-term U.S. Treasuries without having to take on the risks associated with a traditional short position. This is by far the most popular inverse leveraged bond ETF on the market; TBT has accumulated an impressive $3.8 billion in assets under management since launching in April of 2008. The leveraged exposure of this ETF is reset on a daily basis [see How To Play A Treasury Bubble With ETFs].

2. AdvisorShares Dent Tactical ETF (DENT)

Harry Dent Jr., who is renowned for his economic forecasting through the use of demographics, also resides in the bear camp. Dent is known for accurately predicting Japan’s decline through the 1980s and the economic boom in America during the 1990s. What’s worrisome are some of the predictions he is making today; he believes that the younger generation of consumers (coupled with an aging baby boomers population) will not be able to fuel organic economic growth going forward [see also Baby Boomers ETFdb Portfolio].

Investors who are compelled by the Dent Method, which is a long-term forecasting tool based on demographic trends, should take a closer look at DENT, as this actively-managed ETF is run by Harry Dent Jr., the doomsayer himself. This fund uses the proprietary Dent Method to gauge consumption spending habits in order to determine target allocations. DENT is diversified across several asset classes, including cash & equivalents, currencies, equities, and fixed income securities; recent top holdings included the iShares TIPS Bond Fund (TIP), PowerShares DB USD Index Bullish (UUP), and the Dow JHones U.S. Utilities Index Fund (IDU).

3. JPMorgan Alerian MLP Index ETF (AMJ)

Dr. Shilling, a well known economic consultant and prominent financial analyst, is also worried that the U.S. consumer is tapped out. Shilling has stated, “If the consumer pulls back, there’s nothing else in the economy that can sustain growth, and if the consumer retrenches we have a recession”. His approach to combating this harsh reality entails a focus on high dividend paying stocks, with a particular interest for North American companies with natural-gas pipelines operations [see Dividend ETF Investing: Four Critical Factors To Consider].

AMJ coincides quite well with Shilling’s preference for dividend paying securities and a favorable outlook for the energy sector; this ETN holds a basket of MLPs, which are utility-like companies that operate pipelines and storage tanks necessary for the transport of oil and gas products. AMJ has attracted just over $4 billion in assets under management since launching in April of 2009, showcasing the sheer demand for exposure to the dividend-paying MLP asset class [see MLP ETFs: Fact And Fiction].

4. AdvisorShares TrimTabs Float Shrink ETF (TTFS)

Charles Biderman, the head of TrimTabs Investment Research and portfolio manager of TTFS, is surprisingly bullish on equities, although he foresees a major market correction once the Fed ceases quantitative easing and raises rates. Biderman is predicting for momentum to slow down considerably on Wall Street throughout the second half of 2012  [see also 3 ETFs For The End Of Operation Twist].

TTFS has amassed close to $9 million in assets under management since launching recently in November of 2011. This actively-managed ETF is run based on extensive historical research from TrimTabs; from an allocation perspective, TTFS is tilted towards the consumer discretionary and information technology sectors [see also TTFS Fact Sheet].

5. Guggenheim Enhanced Ultra-Short Bond ETF (GSY)

The last of the doomsayers, Robert Prechter, is by far the most bearish one from the bunch. Pretcher feels that both investors and consumer are tapped out, deeming the run-up seen on Wall Street as a classic bear market rally. He recommends that investors avoid all major asset classes, including stocks, bonds, commodities, and even precious metals [see also Seven Reasons To Hate Gold As An Investment].

In light of this pessimistic outlook, we feel that a conservative money market ETF like GSY makes for an appealing investment. This actively-managed ETF focuses on short-term, investment grade debt securities. GSY’s underlying portfolio has an average duration of about two months; this means that the fund is exposed to virtually no interest rate risk, making it a viable tool for those looking to preserve cash but are worrisome of a potential hike in interest rates [see also Money Market ETFs In Focus: MINT vs. GSY].

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Disclosure: No positions at time of writing. Photo courtesy of John Kerstholt.