As we welcome the new year, it is perfect time to take a fresh
look at our portfolios, and consider the strategies that may work
Despite significant challenges, stocks managed to perform well
in 2012, with the S&P 500 index returning more than 13% during
the year. (Read:
3 ETFs for the January Effect
The good news is that the congress finally arrived at a
compromise to avoid most of impending tax increases and postpone
spending cuts. While there are still a large number of unresolved
issues, the market may get a short-term lift from the deal.
Looking at the longer-term, it may be another year of
muddle-through growth for the US economy, while most of Euro-zone
may remain in a recession. I do not see many bright spots in the
rest of the developed world and expect the gap between the
performance of the developed and the developing countries to widen
While there is no way to accurately predict the performance of
the markets, there are certain mid-to-long term investing
strategies that will likely succeed in 2013 and beyond.
will be back in focus
Dividend stocks and ETFs lagged the broader market last year,
primarily due to concerns relating to potential tax hike this year.
Now with a favorable agreement in place regarding tax rates on
dividends, the demand for dividend-paying stocks and ETFs will go
Dividend taxes for top-bracket taxpayers will rise from 15% to
20% (plus an additional 3.8% surcharge for Obamacare, to a total of
23.8%)-much less than 39.6%, if there was no deal. Dividend taxes
for those in the lower tax brackets would remain at the current
Even before the agreement, I maintained that the sell-off in
high-quality dividend stocks and ETFs in anticipation of the tax
increase was unreasonable. Most dividend paying companies are
large, mature companies with solid cash-flows that are likely to
perform better than the broader market in the longer term.
Further, dividend stocks and ETFs are excellent options for
investors searching for yields in the current environment of
rock-bottom interest rates. At the same time these investments also
provide greater stability and safety in volatile environment.
3 Excellent Dividend ETFs for Safety and Income
My top pick among the dividend ETFs is
Vanguard Dividend Appreciation ETF
. VIG follows the Dividend Achievers Select Index, which is
composed of common stocks of high quality companies that have a
record of increasing dividends for at least 10 years. It is
Zacks rank 1-'Strong Buy' ETF.
Emerging Market Sovereign Debt ETFs may stay hot
The case of investing in emerging markets' sovereign debt seems
to be pretty strong now. Many emerging countries now have better
fiscal health and lower debt levels than their developed
counterparts. Further these countries are growing at much higher
rates compared to the developed world and also have low
correlations with developed economies.
While interest rates are at rock-bottom levels in the U.S., the
emerging countries' central banks still have the flexibility to cut
rates further, providing great chances for capital appreciation.
Emerging Markets Sovereign Bond ETFs-Safe with
For investors who do not want short-term currency related
fluctuations in their portfolio, US dollar denominated bond ETFs
.P. Morgan USD Emerging Markets Bond Fund (
PowerShares Emerging Markets Sovereign Debt Portfolio (
) are the best options.
However, investors looking for true diversification in their
portfolios and higher longer-term return should consider investing
in emerging markets local currency bond ETFs.
Housing will be one of the brightest spots in U.S.
Recent housing data suggests that housing market has finally
bottomed out. Fed's low interest rate policy and massive purchases
of mortgage backed bonds will further support the housing recovery
in 2013. (Read:
Best Construction ETF to ride the housing
As a result of improving sentiment, home construction companies
and the homebuilder ETFs have been on the run in the past few
weeks. In fact, the
iShares Dow Jones US Home Construction ETF (
was the best unleveraged ETF performers in the entire market last
year, with more than 79% return.
ITB has been Zacks rank 1-'Strong Buy' ETF for quite some time.
ITB still appears to be the most suitable ETF for investors seeking
to profit from housing upswing, as it is heavily focused on
homebuilders. We expect homebuilders to benefit the most from the
early stages of housing recovery whereas the other related sectors
will benefit more if the recovery gains momentum and the consumers
have significant disposable incomes. .
On the other hand,
SPDR S&P Homebuilders ETF
has substantial exposure to home-furnishing, home improvement
companies and appliance makers, This ETF has underperformed ITB so
far in terms of performance, but may benefit later this year if the
housing market gains momentum.
Another industry that looks very attractive right now is the
timber industry. Any pickup in the housing construction and
remodeling activities will result in increased demand for wood.
Investors may consider
Guggenheim Timber ETF
iShares S&P Global Timber & Forestry Index
for exposure to this sector.
Some smaller emerging economies may outperform the
We expect better performance from the emerging markets' stocks
this year. China may grow at ~8% next year as the domestic
consumption and investment picks up due to recent policy
India's pace of growth this year was slowest in about a decade
mainly due to rising inflation, widening fiscal and current account
deficit and a weakening currency but some of the recent policy
measures taken by the Indian government have revived the investor
optimism for the country. (Read:
Buy these Asia ETFs to beat China, India
However some of the smaller emerging economies may outperform in
2013 due to their strong growth resulting from robust domestic
consumption, political stability and favorable investment
In Latin America, I expect Mexico and Colombia to outperform
their regional peers. Among South-east Asian countries, I am very
hopeful for long-term prospects of Philippines and Indonesia.
iShares MSCI Mexico Investable Market Index ETF
has a Zacks ETF Rank of 1-'Strong Buy'.
The investors have two ETF options for Colombia--
Global X FTSE Colombia 20 ETF
Market Vectors Colombia ETF
. GXG enjoys Zacks rank of 1-'Strong Buy' while COLX is ranked
iShares MSCI Philippines Investable Market Index
) has a Zacks ETF Rank of 1-'Strong Buy'.
The investors have a choice of two Indonesia specific ETFs:
Market Vectors Indonesia Index ETF
iShares MSCI Indonesia Investable Market Index
. IDX has a Zacks ETF rank of 1-'Strong Buy' and EIDO has Zacks ETF
Rank of 2-'Buy'.
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(COLX): ETF Research Reports
(CUT): ETF Research Reports
(EIDO): ETF Research Reports
(EMB): ETF Research Reports
(EPHE): ETF Research Reports
(EWW): ETF Research Reports
(GXG): ETF Research Reports
(IDX): ETF Research Reports
(ITB): ETF Research Reports
(PCY): ETF Research Reports
(VIG): ETF Research Reports
(WOOD): ETF Research Reports
(XHB): ETF Research Reports
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