5 Beaten-Down ETF Buying Opportunities

by Jim Woods | March 29, 2012 7:00 am

5 Beaten-Down ETF Buying Opportunities

ETFs 300x275 5 Beaten Down ETF Buying OpportunitiesWe all know that stocks have gotten off to a very bullish start in 2012. Year-to-date, both the Dow and S&P 500 have staged rallies, climbing over 8%, while the Nasdaq has jumped well over 10% so far in 2012. Stocks in the tech-heavy Nasdaq 100 have performed even better, rising a robust 12.6% so far this year. Yet with every rosebush there are many thorns, and in market terms, that means there have been some big losers so far in 2012.

Now, if you’ve been around the market for any significant length of time, then you know what’s in the doghouse today often is the leading the pack tomorrow. As the great Mark Twain once said, “Whenever you find yourself on the side of the majority, it is time to pause and reflect.”

With this wise sentiment in mind, I want to pause and reflect on the following five beaten-down ETFs that could very well be great buying opportunities when the lead dog changes.

Select Sector Utilities SPDR

electrical outlet 630 300x225 5 Beaten Down ETF Buying Opportunities[1]One of the traditional safe-haven sectors when stocks are trending lower is utilities. These are slow, steady dividend payers that hold their ground when times are tough in the economy, and in the equity markets. Yet right now, the market has a bullish appetite, and that means we’ve seen a lack of taste for the Select Sector Utilities SPDR (NYSE:XLU[2]), which holds the biggest energy and power providing stocks around. So far in 2012, we’ve seen a 2.8% slide in XLU. However, I think this trend can reverse course with a flip of the investor sentiment switch. If this rally starts to wobble, look for XLU to see an investor flight to quality that could power the shares higher.

iShares Lehman 20+ Year Treasury Bond Stock PRices iStock 000005537476XSmall 200x300 5 Beaten Down ETF Buying Opportunities

The risk trade is on, and that means investors have opted for stocks over bonds. In particular, long-term Treasury bonds have been a very weak segment since the beginning of the year. The flight of capital away from safety and into risk has pushed the iShares Lehman 20+ Year Bond (NYSE:TNT[3]) down 4.4% this year. Yet now may just be the time to get into the sector, because when the risk trade goes from hot to cold, money will make its way toward safety—and there’s no safer asset class than long-term U.S. Treasury bonds.

AdvisorShares Active Bear ETF

Bear 300x227 5 Beaten Down ETF Buying Opportunities[4]There’s nothing more frustrating than being short stocks while the market is caught up in a bull stampede, and that’s precisely what’s happened to the AdvisorShares Bear ETF (NYSE:HGDE[5]). This fund seeks out companies with poor earnings or other negative fundamental factors that could act as a catalyst for a share price decline. There are many such companies out there, but when the market is moving higher, sometimes your hedges just don’t pan out. Conversely, when the market is trending lower, poor earnings and other negatives force a company’s share price lower. If the tide turns on this market, look for HDGE shares to rebound from their 16.9% year-to-date drubbing.

United States 12 Month Natural GasNatural Gas Plant 2010 07 06 1615 300x209 5 Beaten Down ETF Buying Opportunities

The United States 12 Month Natural Gas (NYSE:UNL[6]) is a fund tied to the spot price of natural gas. That price has dropped big time in 2012, as a warmer than average winter curbed demand, while new supply came online thanks to better discovery technologies, and new extraction methods such as fracking. At some point, the current oversupply situation will evaporate into normal levels due to rising demand for liquefied natural gas, which unlike normal natural gas can be transported to other countries. Also, more usage of natural gas for transportation in “nat gas” vehicles is expected this year, as well as in the years to come, as stricter emission standards around the world go into effect. When the fundamentals in the space turn, I think we’ll see UNL make a big bounce off its 21.3% year-to-date decline.

ProShares VIX Short-Term Futures ETF

03 28 12 vix 300x189 5 Beaten Down ETF Buying Opportunities[7]Perhaps the biggest victim of the steady rise in stocks this year is volatility. Unlike 2011, stocks haven’t been very volatile at all. In fact, they’ve been downright stable as they’ve conducted their bullish march higher. That’s left the ProShares VIX Short-Term Futures ETF (NYSE:VIXY[8]) fund down 32.7% in 2012. This fund is a bet on the rise of the VIX, also known as the “fear index.” Well, there hasn’t been much fear in the market this year, but all of that could change with some adverse news on the economic front here at home, in China, or in the persistently perilous European Union. One big negative could raise the fear factor up to heightened levels — and with it the value of VIXY.

This article originally ran in Traders Reserve

Endnotes:
  1. [Image]: http://investorplace.com/wp-content/uploads/2011/10/electrical-outlet-630.jpg
  2. XLU: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLU
  3. TNT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TNT
  4. [Image]: http://investorplace.com/wp-content/uploads/2011/11/Bear.jpg
  5. HGDE: http://studio-5.financialcontent.com/investplace/quote?Symbol=HGDE
  6. UNL: http://studio-5.financialcontent.com/investplace/quote?Symbol=UNL
  7. [Image]: http://investorplace.com/wp-content/uploads/2012/03/03-28-12-vix.gif
  8. VIXY: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIXY

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