Ah, New Year’s, the time of resolutions, promises and predictions. 2015 promises to be a year of solid economic growth in domestic markets, turmoil in pockets of the emerging world, and there’s a good chance we’ll see the first positive interest-rate movements in ages, against a backdrop of $50—or cheaper—oil.
So what ETFs do I think are interesting for 2015? Here are my picks. Like last year, I’m picking one fixed-income fund, one equity fund and one flier.
Last year, I highlighted the iShares Floating Rate Bond ETF (FLOT | B-98), a way to protect against rising rates while investing in fairly boring stuff yielding half a percent a year. This year, however, I think it’s probably time for many investors to address the chronic home bias of their bond exposure.
Vanguard’s BNDX gives investors a great addition to their existing fixed-income exposure by targeting investment-grade bonds outside the U.S. Importantly, it hedges out the currency, so you're getting pure fixed-income exposure without currency volatility.
What do you get for stepping slightly outside the box? Better performance for only a small downgrade in credit quality (from A+ to A) versus the Barclays Aggregate:
Oil at $55/barrel is a tax cut for everyone, but it helps out Europe even more than it helps the rest of the industrialized world. It will take time for that economic spillover to hit the European economy the way it did the U.S. in 2014, but I believe 2015 will be good for Europe.
On top of the oil effect, the European Central Bank seems to finally have its act together. While Europe isn’t at distressed, crazy-low valuations, I think it could be the best developed market in 2015.
The traditional ETF to play Europe would be the Vanguard FTSE Europe (VGK | A-98), which is a steal at just 12 basis points, and it trades well. But I’m not super-keen at being long the euro; in fact, European equity expansion may in fact rely on a weak euro to finally deliver on the promised export boom.
That leads me right to DBEU, which has beaten the pants off VGK in the last year, and I suspect will do so again in 2015.
In the interest of coming clean, my pick here last year was the Deutsche X-trackers MSCI Germany Currency Hedged Equity ETF (DBGR | C-69), which isn’t winning any awards for being up about 3 percent in 2014. Still, I think Europe as a whole is back on track.
Last year, I highlighted the crazy undervaluation of the Market Vectors Gold Miners ETF (GDX | B-68), which proceeded to climb 30 percent … and then give it all back plus another 10 percent to boot by the time the year ended.
This year, I think the wild ride may belong to India.
India is by far the most interesting of the countries that make up the BRIC sector (with neither Brazil nor Russia helping out much in 2014). While China stocks had a great year in 2014, I think much of the growth there is well priced in, and that growth itself remains tenuous and politically volatile.
India, however, is a flourishing capitalist democracy with increasingly Western-looking policies. And cheap oil helps India—a lot.
Cheap oil gives still-new-leader Narendra Modi a chance to focus on the real reforms needed to boost the growth path we’ve already seen—the Indian market is already, like the U.S., at all-time highs. I believe those reforms and that growth will be there in 2015, but there are plenty of reasons to worry—rising rates, or a rebound in oil or a devaluation of the rupee could all lead to unpleasant surprises.