Top Macro ETFs From Alpha Think Tank

July 23, 2014

CHINA SPDR S&P China (GXC | C-41)

China is often key in every macroeconomic discussion, since global growth is now so interconnected to the world’s second-largest economy.

In early March, Jim Rogers pointed to an unloved Chinese equity market that’s down significantly from its all-time highs. He said the government is committed to spending lots of money in specific segments of their economy, and told us he’s starting to invest again in certain “offshore” Chinese securities.

In April, Marc Faber, author of the “Gloom, Boom and Doom Report,” also pointed to China’s depressed markets, while highlighting the country’s questionable accounting standards and its massive credit bubble. Faber told us he owns Hong Kong shares, which he prefers to own for a China turnaround.

Meanwhile, both Brendan Fitzsimmons—head strategist at Medley Global Advisors, and Ed Yardeni, head of Yardeni Research, favor Chinese consumer companies.

In February, Fitzsimmons said he expects China’s economy to continue humming along, rather than implode or surge to the upside. A few months later in June, Fitzsimmons alluded to China’s demographics favoring wages and employment, a positive dynamic for consumers.

In March, Yardeni said the Chinese economic slowdown was directly impacted by the government’s commitment to transform the economy from an export- to a consumer-led growth model. While he sees hiccups along the way, over the long haul, he expects China to be successful in its historic transition.

For comprehensive “offshore” Chinese securities, which both Rogers and Faber prefer, GXC is the clear winner. For 59 basis points, the fund captures roughly 280 large-cap, midcaps and small-cap “investable” Chinese securities traded in both Hong Kong and the U.S. The seven-year-old fund has more than $840 million in assets and trades more than $3.5 million a day at 0.05 percent spreads.

Roughly 90 percent of GXC is weighted in Hong Kong-listed Chinese securities (Faber’s preference). Finally, GXC holds many nongovernment-owned consumer-related companies listed in both Hong Kong and the U.S., and includes many U.S.-listed e-commerce Internet firms.

GXC YTD

Charts courtesy of StockCharts.com

So, there are our Alpha Think Tank’s top 3 macro-themed ETFs. I want to stress that these are but three of the many themes discussed weekly with our strategists. Many more macro views are constantly discussed, from U.S. equities, emerging markets, fixed income, commodities and currencies.

It goes without saying that market conditions and geopolitical events can unfold rapidly at times, causing strategists to either re-evaluate or change their investment views.

That’s also why we interview our strategists on a quarterly basis and revisit previous calls to verify if any views have changed. I’ve always thought knowing which markets to avoid, or keeping track of investments in case of game-changing market events, are equally important.

 

Coming Next Week: 3 Contrarian ETFs From Alpha Think Tank


At the time this article was written, the author held no positions in the securities mentioned. Contact Dennis Hudachek at [email protected], or follow him on Twitter @Dennis_Hudachek.


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