The long-term prospects look solid for solar, water ETFs, according to one hedge fund manager.
The two-week-long political drama between Russia and Ukraine has captured the attention of a global audience of geopolitical wonks and investors such as Vinny Catalano, president and global investment strategist with Blue Marble Research Advisory.
Catalano, a hedge fund manager, recently spoke with ETF.com staff writer Hung Tran about how Russia’s annexation of Crimea is likely to play out for energy and alternative energy investors. He also shared his thoughts on one particular commodity, water, which doesn’t get a lot of headlines but shouldn’t be ignored.
ETF.com: Would you tell us a bit about your firm?
Vinny Catalano: Global Research Advisory has three distinct businesses: independent research; asset management using exclusively ETFs in a long/short global macro hedge fund; and events that we produce with various different chartered financial analyst societies and other organizations throughout the world.
ETF.com: And you started the hedge fund in 2006 with an ETF-only focus from the start?
Catalano: Yes, all ETFs. There’s a general sector exposure in the fund taking the 10 economic sectors of the U.S. and overweighting, say, industrials and underweighting basic materials. That’s the centerpiece of how the portfolio functions. The portfolio could also be based on regions of the world, so I’ve had positions in Turkey, Brazil and even Russia for a while.
One recent bet was to go long the S&P Europe 350 with the iShares Europe ETF (IEV | C-97) and go short the ProShares Short Russell 2000 ETF (RWM). The bet there is that high-quality, blue chip names—particularly in Europe—will outperform midcap and small-cap issues here in the U.S. That’s a hedge position, which worked for the first week or two, but since then, it hasn’t worked. So it’s pretty much breakeven so far.
ETF.com: What about the recent tension between Russia and Ukraine? Some investors see that as an energy-play opportunity. What is your take on that?
Catalano: I think that that issue is likely to get resolved at some point. There’s really not a whole lot the West can do other than sanctions, creating diplomatic issues with Russia.
It’s not likely that it’s going to escalate into something more serious. If it did, then you’d have one factor offsetting the other. One factor would be that energy prices would go up because of the friction and the risks involved with all of that, and with Russia being a big producer.
The offset to that would be that the global economy would slow to a degree and that means less energy consumption. So there’s a trade-off there, and I don’t think the conflict is going to cause it to go any other way other than one factor offsetting the other.
You also have some other supplies that are starting to be discovered. You’ve got Brazil drilling in the Atlantic and you’ve got Croatia working on bids to drill in the Adriatic Sea.