RSSAsset Allocation and ETFs: Some Of the Riskiest ETFs May Have Huge Potential
By Gary Gordon | September 19, 2008 | 7:12 PM | 0 Comments
It's not every week that you'll see the world's financial system teeter on the brink of relevance. Then, in the same week, witness U.S. leaders introduce multi-faceted, comprehensive reform in bipartisan unison.
Similarly, you're not going to see many weeks in U.S. history where domestic stocks collapse 10% intra-week. Then, after the disclosure of proposed "game-changers," experience a 2-day rally that recovers the 10% and then some. Now that's a week to remember!
Naturally, my phone's been ringing off the hook. For instance, a number of media correspondents have asked my opinion about "high risk/high reward" possibilities in the ETF universe.
Before serving up a number of spicy ETFs, I decided that it might be best for the "named" funds to fit a particular role in one's portfolio. Specifically, I believe infrastructure, "private equity" and emerging markets deserve a spot in growth-oriented allocation mixes.
It follows, I served up 3 ETFs that may work into an asset allocation model:
1. PowerShares Private Equity (NYSE: PSP). Private equity represents the business of "buying out" public corporations or acquiring distressed assets or lending capital. In 2006/2007, "private equity" was the rage.
Yet the nature of being tied to "financing" brought private equity to its knees in 2008, much the same way that the entire financial sector became "short-seller" meat. In some ways, this didn't quite make sense, as most experts view private equity as an asset class all its own, not an aspect of public stock.
Regardless, private equity firms have been circling the wagons. They've been taking advantage of the credit crisis mess, and stand to profit from the bits and pieces. What's more, they continue to profit from making calculated bets on private companies with exceptional promise and clean books.
Granted, it's risky. If private equity firms hold back their capital, they can't be as profitable. And the inevitable tie to the financial industry in general causes many to steer clear of what some might describe as a fad.
Nevertheless, you have respected investment leaders like El-Arian and gigantic endowment funds that recommend 10% or more in private equity investing. Enter the Powershares Private Equity Fund (PSP). It hasn't been pretty to look at, but it may be getting prettier.
2. PowerShares Water Resources (NYSE: PHO) has been more volatile than the Nasdaq plus Gustav/Ike. It has been hard to hang in there.
Yet the rewards for this infrastructure investment may be gy-normous in a market that may wish to move higher. In fact, 9/19/2008 activity puts PHO back above its 200-day trend... a technical buy signal.
(Want to see why I have been bullish on water? Read more about PHO here.)
3.Wisdom Tree Emerging Market High Yield (NYSE: DEM). Internationally, you can probably go right back to the emerging markets for high risk ideas. Yet DEM at Wisdom Tree has one of the best year-end yields around, approximating 8%. On top of that, it has fallen less than all of the other emerging market funds.
The P/E ratio is sub-9... making it a steal should the market return to fundamentals.
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
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