July 2, 2013
Ron DeLegge, Editor
What are this year’s biggest investment trends?
To help us keep track, we organize the major trends via our Mega Investment Theme Report. And now that 2013 is officially half over, we can examine the biggest unfolding investment themes thus far.
(NOTE: The rise of exchange-traded funds also known as "ETFs" has made it easy for both investors and institutions savvy enough to be on the right side of the market to profit from these trends.)
Without further ado, here are the top three trends:
1) Submerging Markets
The relative underperformance of emerging market stocks (NYSEARCA:VWO) in places like China and Brazil compared to developed markets (NYSEARCA:EFA) is a major investment theme.
The global equity map in our July 2013 Profit Strategy Newsletter (see below) illustrates noticeable underperformance of the BRIC (NYSEARCA:BKF) complex (Brazil, Russia, India, and China) not just against broader emerging markets (NYSEARCA:VWO) but versus every single major country in the developed world.
Over the past several years, economists have wrongly theorized that overindebtedness and slowing economic growth in developed markets like Europe (NYSEARCA:VGK) and the U.S. (NYSEARCA:VTI) would not negatively impact emerging market countries like China (NYSEARCA:FXI) or Brazil (NYSEARCA:EWZ). Good thing we burned their thick textbooks eight quarters ago.
On a much larger scale, ETFguide’s global equity map also shows deterioration in world stock markets since the start of the year. Today, just 4 out of 13 major global equity markets are posting year-to-date gains, compared to January 2013 when 12 out of 13 equity markets were positive.
2) Interest Rates Spike
After bottoming at 1.63% on May 2, the yield on 10-year U.S. Treasuries (NYSEARCA:IEF) has spiked an incredible 33% to near 2.5%. Investors who own individual bonds or a bond fund will likely see something they haven’t seen in a while when they up their mid-year statements; bond value losses.
When bond yields rise, bond prices fall. And long-term bonds and treasuries, because of their sensitivity to rate spikes have fallen the hardest. The iShares Barclays 20+Yr Treasury ETF (NYSEARCA:TLT) has declined 10% since early May.
Conversely, ETFs that gain from falling bond prices like the Direxion Daily 20+ Yr. Treasury Bear 3x Shares (NYSEARCA:TMV) and the ProShares UltraShort 2x 20+ Yr. Treasury ETF (NYSEARCA:TBT) are ahead between 10.5% to 14% over the past three months. Both funds use daily leverage of 300% and 200% and are designed to increase in value when bond prices fall.
More gains for TMV and TBT are ahead if the yield on 10-year U.S. Treasuries (^TNX) dances with 3%. (See our bi-weekly updates on Treasury Bond ETFs via our Technical Forecast.)
3) The #GreatGoldCrash2013
The Great Gold Crash of 2013 is undoubtedly this year’s biggest investment theme. While gold permabulls keep boldly and incorrectly predicting higher prices, gold bullion continues heading south.
WATCH: How Gold Experts Are Misleading the Public
Since the beginning of the year, the world’s largest gold ETP, the SPDR Gold Shares (NYSEARCA:GLD) has fallen by 26% and is in a bear market.
During the course of its 12-year bull market, gold prices have fallen more than 10% in value seven times and by more than 20% on three occasions. Between March and October 2008, gold slid by 30%. (See chart below) Yet, today, gold’s current correction is much larger. Since its peak in mid-August 2011, gold has declined 35%.
You could say the crash in precious metals is a theme within a theme because commodities as a group (NYSEARCA:GCC) are down 10.5% YTD and just like gold, have been in a bear market since hitting 2011 peaks.
The July 2013 ETF Profit Strategy Newsletter contains our Mega-Investment Theme Report, our global equity map, along with our popular market meter. Subscribers also get our Weekly ETF Picks and Technical Forecast.
Through June, 78% of our Weekly ETF Picks have been winners and our biggest winner was a 525% gain.
We sincerely hope the second half of 2013 will bring you many large capital gains.
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