Top ETFs to Buy Now
In addition to political changes in the Middle East and North Africa, along with the continuing threat of European debt contagion, the recent earthquake and tsunami in Japan add more pressure to the prospects of long-term inflation.
This list of exchange-traded funds (ETFs) was chosen to represent those funds that could benefit from the current global inflation and an increase in interest rates. These ETFs were also screened for reasonably low expense ratios since high fees can result in reduced long-term performance.
Here are the top ETFs to buy now:
PowerShares DB Agriculture Fund (DBA)
The PowerShares DB Agriculture Fund (NYSE: DBA) seeks to track the price and yield performance of the Deutsche Bank Liquid Commodity Index – Optimum Yield Agriculture Excess Return, and is intended to reflect the performance of the agricultural sector. Holdings include futures contracts of cocoa, sugar, coffee, live cattle, soybean, corn, wheat, lean hogs, etc.
Food shortages and higher prices for corn, wheat, soy beans and sugar are being forecast by economists. Recent evidence of worldwide inflation in these basic foods is now estimated to be close to 15%.
Net expense ratio is 0.75%. Buy now with a 12-month target of $45-plus.
PowerShares DB Base Metals Fund (DBB)
This PowerShares DB Base Metals Fund (NYSE: DBB) seeks to track the price and yield performance of the Deutsche Bank Liquid Commodity Index – Optimum Yield Industrial Metals Excess Return. The index is composed of futures contracts on some of the most liquid and widely used base metals — aluminum, zinc and copper — and, thus, is a strong candidate for a powerful move north in 2011. An increase in inflation could accelerate higher prices in base metals.
Commodity ETFs may be subject to greater volatility than traditional ETFs and may not be suitable for all investors. Unique risk factors of a commodity fund may include, but are not limited to, the fund’s use of aggressive investment techniques such as derivatives, options, forward contracts, correlation or inverse correlation, market price variance risk and leverage.
Net expense ratio is 0.75%. Buy now with a target of $30 within three months.
ProShares UltraShort 20+ Year Treasury Fund (TBT)
The ProShares UltraShort 20+ Year Treasury Fund (NYSE: TBT) seeks daily investment results that correspond to twice the inverse (opposite) of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index. The non-diversified fund invests in derivatives that ProShares advisers believe should have similar daily return characteristics to twice the inverse of the daily return of the index. It usually invests the rest of the assets in money market instruments.
The economy appears to be improving, and interest rates are expected to rise at some point this year. As an inverse ETF, it will move in the opposite direction of the 20-year U.S. Treasury bond. If interest rates rise, bond prices should fall and TBT should rise.
TBT is suggested as a long-term purchase and hedge against rising interest rates. Net expense ratio is 0.95%.
Rydex S&P Equal Weight Materials Fund (RTM)
The highly rated Rydex S&P Equal Weight Materials Fund (NYSE: RTM) should do well in an improving economy. It should also benefit from the rebuilding of Japan’s infrastructure.
This investment seeks to replicate the performance of the S&P Equal Weight Materials Index. The fund uses a passive management strategy to track the performance of the underlying index. Holdings include Cliffs Natural Resources Inc. (NYSE: CLF), MeadWestvaco Corp. (NYSE: MWV), Allegheny Technologies Inc. (NYSE: ATI), Eastman Chemical Company (NYSE: EMN) and Alcoa Inc. (NYSE: AA).
Morningstar rates RTM a “five-star fund.” Net expense ratio is 0.5%. Buy at $60 or under for a move to $75 within 12 months.
United States Natural Gas Fund (UNG)
There is a renewed interest in increasing the development of vehicles and industrial processes to use natural gas as an energy source. So far, it has not resulted in higher prices for natural gas, but for those investors who “bottom fish,” the United States Natural Gas Fund (NYSE: UNG) could have a sizable return over a two-to-five-year time frame.
The trust invests in futures contracts on natural gas traded on the NYMEX that is the near-month contract to expire. This investment should be considered by long-term investors who want to invest in an expanded use of natural gas as a primary fuel source. It is a non-diversified, commodities-based fund and, thus, not appropriate for all investors because of its potentially high volatility. Net expense ratio is 0.6%.