Hougan: 4 Lessons From ETF Strategists

July 01, 2014

The world’s leading ETF investors gathered in New York for a day. Here are four takeaways.

I recently returned from New York, where I attended ETF.com’s First Annual Global Macro ETF Strategist conference. It was a full-day event pulling together the largest and most sophisticated ETF investors in the world to answer one simple question: Where should people invest right now?

Everyone who is anyone was there. Windhaven, Riverfront, Clark Capital, Accuvest, Glovista, Globalt, Lazard, Cumberland … the list goes on. Even the individual all-stars were in attendance: Don Luskin, Dennis Gartman, Jim Lowell and so on.

There were a lot of potential takeaways from the event. But here are four that stuck with me.

Takeaway No. 1: The Best Idea Of The Day Is … Buy Aluminum?

I moderated the first panel of the day: an hour-long discussion among Cumberland Advisors’ David Kotok, The Gartman Letter’s Dennis Gartman and Advisor Investments’ Jim Lowell. Between the three, there is more than 100 years of investing experience, billions of dollars in assets under management and large staffs of researchers.

The panel covered a lot of ground, focusing mainly on Federal Reserve policy. At the end of the session, I asked each panelist for his single best investment idea for the coming year. I expected answers like Spain, emerging markets or even long-term Treasurys.

Instead, I got aluminum.

Aluminum?

Dennis Gartman’s esoteric choice was surprising, but the logic was sound. No matter how pessimistic you are about China and other emerging markets, people there are going to be buying more cars there in the next 10 years than they did in the past 10.

And no matter what your view is on the Environmental Protection Agency or global warming, there’s a massive push right now to increase the mileage of automobiles. Both point to more aluminum consumption.

There are two aluminum ETNs out there. Both are illiquid and difficult to trade. The iPath Pure Beta Aluminum ETN (FOIL | D-90) ranks ever so slightly better in the ETF.com Analytics system, so it’d be the play here.

Takeaway No. 2: The Second-Best Idea Is … Health Care?

Jim Lowell followed Dennis Gartman in answering my question, and he gave a nearly equally esoteric answer: health care.

Health care?

The call had nothing to do with Obamacare or biotech buyouts, the reasons du-jour to like health care. Instead, Lowell was also thinking big picture. Here’s the logic: No matter what you think about emerging markets as an investment, the people there are getting richer. As they get richer, they will demand more health care.

The best ETF for that idea is the iShares Global Healthcare ETF (IXJ | A-88), our Analyst Pick in the global health care segment.

Gartman’s and Lowell’s picks are interesting in isolation, but they’re more interesting in the aggregate, for two reasons:

  1. They spring from the same source: Investors have soured on emerging markets as a stand-alone investment, but the long-term theme of rising wealth in the developing world clearly has taken hold.
  2. They’re both so odd. Anytime people reach as far as aluminum for their best idea, it makes me wonder if we’re near a top.

 

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