The 2 Best Tactical ETFs to Buy Now

10/20/2011 7:30 am EST

Focus: ETFS

Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

At this point the market is giving one simple lesson: Those who proclaim bottomless free falls aren’t worth lending a parachute, writes Jim Lowell of Forbes ETF Advisor.

As we wend our way through one of the most difficult, emotional quarters since the market meltdown that began in September 2008 and ended on March 9, 2009, I wanted to look back to that moment when fear was at its apex and confidence was DOA. to see what stock, bond, and sector ETF’s recovered ground quickest.

Back then, and unfortunately again today, fear was fueled by a range of dire forecasts with little evidence of accuracy among the most heralded forecasters. Back then, the call was for a “new normal” wherein consumers would wall off their historical spending patterns and hole up until judgment day came.

Back then, Nouriel Roubini was the golden child of the media circus that attends any disaster, the bigger the better. Roubini was calling for a complete collapse of the financial system.

PIMCO’s bond guru Bill Gross claimed the Dow Jones Industrial Average would fall to 5,000, about as accurate as his call to sell all long-term Treasuries at the beginning of this year. If there had been an ETF with the symbol DOA. (instead of the one I prefer, whose symbol is DIA), it would have sold faster than rat traps in a plague.

Back then, I underscored the fact that consumer spending didn’t stop; noting that consumers would walk into a phone store where seven phones on the wall all did the same thing, but rather than opt for the six phones being sold at low prices or free, they were plunking down $500 for iPhones as fast as Apple could manufacture them.

Today, there are similar signs of willing and able consumers, and despite the absence of 20 million formerly fully employed spenders, and with due regard for all that has not gone right or well as relates to the job, home, and global markets—not to mention investor psyches—our economy still has a faint growth pulse and consumers are still spending. Both remarkable achievements, in my view.

We now know that Roubini’s forecast for the death of the markets was greatly exaggerated. In fact, the markets rose faster than his own social climbing, an amazing feat.

Even after the recent market bloodbath, the Dow is up 118.3% from Gross’ prediction, and up 66.7% from the 2009 low point. Fidelity’s Spartan Long Term Treasury fund is up 27.7% year-to-date.

Tales of the markets’ deaths have been greatly exaggerated.

Keeping a portion of your powder dry will better enable you to stay the intermediate-term course with your core investments. While stocks have rarely been a better value compared to bonds, confidence has rarely been lower in the prospects for future growth. Still, if companies can make money in this environment, investors can, too.

The two best tactical opportunities in the growth, income, and total-return sectors are iShares Emerging Market Bond (EMB), for bargain-basement emerging-market bond hunting, and SPDR Global Titans (DGT) to take a balanced approach to imbalanced times.

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