Who knew GDX would be among Dave’s top ETF picks for next year?
Hey, I love Paul Baiocchi. After all, I hired the guy, but I saw his “Top 5 Picks” for 2014, and started wondering what might be in the water in San Francisco.
It’s not that his picks are flatly illogical. But ETFs like LIT (LIT | C-93) and SOIL (SOIL | D-40) and ZROZ (ZROZ | C-51) are flyers. So when I started thinking about “picks” for 2014—which should always be taken with a grain of salt—I started thinking about core exposures.
To my mind, the interesting opportunities are really around global recovery and managing rising interest rates, so here are two core picks, and, in the spirit of New Year’s, one flyer.
Pick No. 3: Equities – Europe, specifically the Deutsche Bank MSCI Germany Hedged Equity ETF (DBGR | C-47)
What’s the case for Europe? It’s really all relative. Assuming that the developed world will maintain a general pattern of recovery in 2014—which seems a reasonable bet—the question is, What developed market is poised to recover fastest?
Given the not-so-cheap valuations of large-cap stocks in the U.S., it makes sense to look abroad. Germany is probably the answer. German companies are running at near-capacity in terms of productivity and utilization measurements, although investment in new facilities and equipment is low. Consumer confidence is low, but rising, and Germany remains the eurozone’s largest exporter, positioning it to benefit from recoveries in the U.S. and Asia as well.
The euro itself remains the thorny issue. The eurozone’s balance sheet isn’t great, and relative to the dollar—because currency is always relative—it’s hard to love the value of the euro. So the fund you’re left with is the Deutsche Bank MSCI Germany Hedged Equity ETF (DBGR | C-47).
It’s a solid fund, tracking a good index from MSCI, that just hedges out the euro. Not rocket science, but probably better than a blanket bet on Europe, like Vanguard’s excellent FTSE Europe ETF (VGK | A-95).
The fund only scores a C in our ratings system, largely because of tradability concerns but, in recent months, volume has stabilized, and it’s entirely ownable, with limit orders.