The second half of 2012 will likely be as tumultuous as the
first half considering the eurozone debt crisis is nowhere close
to be resolved, Europe's recession, the Fed's extension of
Operation Twist, a close presidential election, the so-called
U.S. fiscal cliff and China's slowing economy.
We asked a panel of asset managers to give us their top ETF
investment for the second half of the year.
Ronald Lang, principal at Atlas Wealth Management, Cherry
Hill, N.J., with $20 million in assets.
Vanguard High Dividend Yield Index ETF (
): Pending any major geopolitical news, we expect the market to
run up 5% to 15% by the elections. With political promises and
plans for business growth, jobs, adjustments to health care and
the financial system, investors will be adding to their positions
in the market.
Along with the possibility of more quantitative easing and the
turmoil in Europe, global money will find its way to our markets
and more specifically to dividend-paying stocks.
Since the end of April, before our markets turned, great
dividend-yielding stocks likeAT&T (
),Verizon Communications (
) and Altria Group (
) have had excellent bullish price action with good volume behind
it while many of the market leaders were down 5% to 8% during the
The financial stocks are struggling and proving that it is not
the best place to put money to work, since they have a difficult
road ahead of them to grow profits, along with more potential
regulation on its way.
Also, many of the financials have little or no dividend yield.
Why not be more conservative with your money in a volatile and
uncertain market and put your money to work in something that
also pays you something back.
VYM has a low expense ratio and low portfolio turnover ratio
of 16%. This means that the portfolio managers believe in their
allocation model and the stocks in the ETF. VYM has outperformed
the S&P 500 consistently over the last five years and by more
than 10% since March 2009. If the market runs as we expect, VYM
should be a nice beneficiary of the market move, potentially
outperforming the market by 3% to 5%. Of course, the 3% dividend
is a nice plus. And you can write option calls against it to
increase your yield.
John Forlines III, chairman and chief investment officer
of JAForlines Global in Locust Valley, N.Y., with $450 million in
IShares JPMorgan USD Emerging Markets Bond Fund (
): With bond yields suppressed to extreme lows in much of the
developed world, we believe investors will continue to look
elsewhere in order to generate income. At the same time, the
credit quality of most developed world sovereign debt has
deteriorated and will likely continue to do so.
Emerging market countries, on the other hand, largely offer
better growth prospects, demographics and fiscal positions.
Additionally, through owning dollar denominated debt, investors
are able to insulate themselves from high inflation being
experienced in some emerging market countries and avoid
foreign-exchange losses that could possibly be incurred by owning
local currency debt.
As the number of "safe havens" continues to dwindle, we
believe investors will increasingly recognize the relative safety
offered by emerging market sovereign debt, which will bring down
its risk premium relative to developed nation sovereigns.
Emerging market debt has long been a staple of JAForlines
Global portfolios and will likely remain so beyond the end of
2012. EMB holds U.S. dollar denominated sovereign and
quasi-sovereign debt of 38 emerging market countries. As of June
15, 2012, it yields 4.55% with an effective duration of 7.5
years, vs. 1.25% for Treasuries of similar duration.
Ted Barnhart, founding member of Barnhart Investment
Advisory in Oak Brook, Ill., with $25 million in assets.
IShares Barclays Treasury Inflation Protected Security ETF (TIP):
The global financial system is awash in a sea of debt, much of
which is unlikely to be repaid at least in real terms. Bad loans
will either be recognized by outright default, or eroded away by
the effects of rampant money creation.
This tightrope walk between inflationary and deflationary
economic forces is the biggest challenge investor's face today
and TIP lets that investor play both the sides of the fence. The
five-year period ending with March of this year was an
interesting window for observation. You had the credit crisis of
2008, in which the S&P 500 declined by 57%, followed by a
quantitative easing-inspired bull market that recouped these
losses. During this period, TIP averaged an annual return of
7.5%, while the S&P 500SPDR (SPY) averaged about 1.9%.
To be sure, TIP is not going to keep pace with stocks during
bull markets. Since March of 2009, SPY returned an average
annualized 13.2%, while TIP returned 8.46%.
The real advantage that TIP has had over the last five years
is that an investor got more bang for the buck in terms of risk
vs. reward. In a deflationary environment, TIP is cushioned by
the fact that the underlying bonds have a principal protection of
the original face value.
TIP will certainly see some volatility, however. During the
crisis of 2008, TIP fell by about 17%, but in the context of the
57% drop in the S&P 500, fears of money market runs and an
all-out credit collapse, TIP was not such a bad place to ride out
In the rest of 2012, you could see any of these scenarios from
the last five years play out again. TIP allows you to stay
invested when you really feel like hiding your money under the
Mark Eshman, chairman of ClearRock Capital in Ketchum,
Idaho, with $300 million in assets.
IShares High Dividend Equity (HDV),JPMorgan Alerian MLP Index
ETN (AMJ),SPDR Dow Jones REIT (RWR),PowerShares Senior Loan
Portfolio (BKLN),SPDR Barclays Capital High Yield Bond
(JNK),PowerShares DB Agriculture (DBA) andPowerShares DB
Commodity Index Tracking (DBC): We are optimistic that the
markets in the U.S. will rally 10% to 15% from current levels
before year-end. While the catalysts to unlock the massive cash
hoards on corporate balance sheets should remain elusive until
Congress constructively confronts our structural debt issue, Fed
action later this summer in the form of another version of QE --
such as purchasing mortgage paper to drive those rates lower,
while letting Treasuries creep higher -- will push investors into
We like HDV, AMJ, RWR, BKLN, and JNK for income and growth,
and have a core position in commodity ETFs like DBA and DBC as
the real opportunity cost of owning them is zero. They are both a
proxy on global growth as well as good hedges against inflation
down the road.