The current state of affairs in global equity markets can be
summed up with one four-letter word: Ugly. Selling in May is
working nicely,
lifting the fortunes of myriad inverse ETFs,
perhaps the best long side bets these days
.
Unfortunately for the bulls, May's showers could easily give
way to
June gloom as seasonal weakness sets in for
select sectors
.
At the moment, it's hard to envision fortune favoring the
brave, but for those with an appetite for risk, some ETFs that
have recently been sold off could make for compelling contrarian
plays.
iShares Dow Jones U.S. Technology Sector Index Fund
(NYSE:
IYW
)
If ETFs were to be named after rap albums, IYW would be named for
the Jay-Z's "Blueprint 2: The Gift & The Curse." IYW's gift
and curse are the same thing: An almost 22% allocation to Apple
(Nasdaq:
AAP
)
something that is good when Apple is soaring and
bad when it is plunging
.
IYW makes for an ideal contrarian bet for those that expect
Apple will come roaring back and that the broader market will
follow. Don't forget the Dow stock with largest weight in that
index, IBM (NYSE:
IBM
), accounts for over 9% of IYW's weight. Overall, five Dow stocks
are found among IYW's top-10 holdings, indicating this ETF can be
profoundly impacted by the blue chip index's fortunes.
Market Vectors Junior Gold Miners ETF (NYSE:
GDXJ
)
The Market Vectors Junior Gold Miners ETF is the epitome of a
contrarian play. Logically, it's hard to get excited about an ETF
that tracks commodities producers
when prices of that commodity are plummeting
.
And there's no getting around the fact that before Thursday's
almost 4% gain, GDXJ's recent string of lower closes amounted to
all-time closing lows. Investors face a conundrum with GDXJ and
it revolves around these questions that are tough to answer at
the moment. What is the maximum amount of downside the ETF is
likely to incur from here? Is the bottom in for gold prices? How
long will GDXJ have to be held before decent profits are
realized?
Market Vectors Vietnam ETF (NYSE:
VNM
)
Readers of this space by now know that we've been bullish on
Vietnam and VNM and with good reason
.
Until the past few days, VNM
had been a beacon of strength in otherwise glum
market environment
, but the sellers have found their way to this ETF, which had
been one of the best performers among traditional long ETFs this
year.
The must-knows regarding VNM's validity as a contrarian play
are as follows: The 200-day moving average must hold as support.
Investors must accept that growth in the Southeast Asian nation,
though slowing, is still vastly superior to what will be found in
most developed markets. Government efforts to stimulate the
economy and shore up Vietnamese banks, VNM's largest sector
weight, must prove successful.
First Trust ISE-Revere Natural Gas Index Fund (NYSE:
FCG
)
First, the good news. Natural gas prices have been in rally mode
lately, a scenario highlighted by an almost 30% run-up in the
United States Natural Gas Fund (NYSE:
UNG
). The Energy Information Administration has cut its production
forecast while raising its demand outlook for natural gas.
That has been a boon for UNG, but not for the equity-based
FCG. And that's the point with FCG that investors need to be
aware. It's a stock ETF whose components produce oil and natural
gas and despite the natural gas rally, FCG is being hammered just
like any other equity-based ETF. If FCG falls further, the test
will be whether support at $14 holds. If it does, and natural gas
prices hold steady or keep rising, FCG becomes a fine contrarian
idea.
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