by Lawrence Meyers | December 7, 2011 6:00 am
I find exchange-traded funds to be a cost-efficient way to provide diversification to a long-term portfolio. ETFs give you exposure to an entire sector without having to pick and choose individual stocks, which can carry a higher degree of risk. I’ve got five ETFs in mind for 2012, based on where I see the macroeconomic environment headed.
Vanguard Consumer Staples ETF (NYSE:VDC) yields 2.69% with an expense ratio of only 0.24%. Consumer staples always are a good place to be invested because they are product that people don’t simply buy — they actually have to buy them. Should the economy continue to struggle, which I believe it will, these companies should hold up better than most. Not surprisingly, VDC’s top three holdings are Proctor & Gamble (NYSE:PG), Coca-Cola (NYSE:KO) and Philip Morris International (NYSE:PM).
Energy Select Sector SPDR (NYSE:XLE) is another must-own for 2012 — and beyond. I’ve written about stocks to hold forever, and there’s a reason why oil producers are part of that group. The world needs oil and always will need oil. No matter how much the Greenies protest, no matter how much government tries to stifle drilling, the black stuff always will be needed. In fact, the more difficult government makes it for oil companies, the higher the price of oil, the more money these producers will make, and the better off XLE is.
Vanguard MSCI Emerging Markets ETF (NYSE:VWO) is another intriguing play. While the West struggles through sovereign debt problems, high unemployment, stupid monetary and fiscal policy, and a capital strike, emerging markets have a lot to look forward to. Commodity prices have corrected, many emerging countries lack the big infrastructure that the West has, and they also don’t have the debt issues. The fact that the sector is off about 13% this year just means lower prices to buy into VWO.
IShares S&P Preferred Stock Index Fund (NYSE:PFF) is another great choice for 2012. I continue to have concerns about municipal debt and other bond instruments in general, so I decreased my exposure to these securities some time ago and reallocated into preferred shares of many different companies. Preferred stocks are stock-bond hybrids. They provide the relative price stability of bonds but have significantly higher yields than most stocks, often in the 6% to 9% range. The fund itself yields a very generous 7%, and as expected, PFF’s actual price differential has been only 1% between the start of this year and now.
Finally, I’m going to toss in a highly speculative play, and that’s the PowerShares DB Gold Double Long ETN (NYSE:DGP). Betting on the direction of precious metals is a very dangerous game, but in this case, all the macro conditions are right for gold to at least maintain its value around $1,700 per ounce, and possibly rise higher. DGP is leveraged so that its price is tied to twice the price movement in gold. However, it is a gamble, so I highly suggest placing a 5% to 7% stop-loss on your trade.
Lawrence Meyers does not hold a position in any ETFs mentioned but may have a position in several stocks the ETFs own. Check out InvestorPlace.com’s other looks back at 2011 and ahead to 2012 here.
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