Contrarian ETF Opportunities in Today’s Market

by on November 24, 2014 | ETFs Mentioned:

Markets are sitting near all-time highs, and despite all of the bumps along the road, it seems that the bull run has yet to be disbanded. While this has been great for those who have been invested for some time, it makes it difficult for those who wish to put their money somewhere, as it is hard to justify buying in with stocks at such highs. Below, we outline three contrarian ETF plays for investors looking to find a beat-down fund or asset class. Note that these are risky investments and should never be a major holding in a portfolio, but rather a small part of an already diversified strategy [for more ETF news and analysis subscribe to our free ETF Daily Roundup].

United States Oil Fund (USO)

It is no secret that crude oil has had a rough go over the last few weeks and months, as the fossil fuel simply cannot catch a break; the fund is down more than 25% since June as crude oil has continued to slip below $75 per barrel (a level that many analysts thought it would not break). A number of factors have combined to sink crude, in turn causing a headache for USO. But as USO continues to fall, it looks increasingly enticing as a short-term buy, as many analysts feel the sell in crude to be overdone.

What is more interesting is that despite USO shedding its price, investors have been buying in. The fund has seen net inflows of nearly $550 million since the end of June. Clearly, someone is loading up on the fund, making a heavy bet on a rebound. Note that even if crude does rebound, this will be a volatile investment and is not meant for the risk-averse.

GoldSPDR Gold Trust (GLD)

In 2011 it looked like GLD was going to be the king of ETFs, as it briefly eclipsed SPY in total assets, but that quickly changed as the bull run in equities sent gold into the gutter. Now, GLD presents itself as an enticing play for anyone who thinks the bull run has almost found its peak. Typically, GLD and SPY will move in opposite directions, as GLD is a safe haven when markets are flailing, but it loses some of its appeal when equities are surging [see also 25 Ways to Invest in Gold with ETFs in 2014].

Another thing keeping GLD down is a run-up in the U.S. dollar (as it has hurt all commodities to an extent). If either the market or the dollar breaks, GLD will be poised to profit, and if both break, the fund could take off. But, for as long as the bull run continues, GLD will likely remain depressed; timing is key for this contrarian play.

Market Vectors Russia ETF (RSX)

To say Russia has seen its fair share of turmoil this year would be quite the understatement, as it has been gobbling up headlines for much of 2014. Along with the negative press has come a collapse in RSX and most Russia-related ETFs, as they have been some of the worst performers YTD (RSX has lost nearly 30% in 2014). As we have seen so many times in the past,  however, an emerging market that is down in one year has the potential to surge forward in another.

The trouble with Russia ETFs has stemmed largely from political issues, not necessarily from economic performance. To be frank, many have avoided Russia simply because it is bad news right now. While it is certainly a risky investment, there is no doubt that RSX is beat-down and ripe for a contrarian’s picking. 

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.