5 ETFs to Play the Top Global Trends

10/26/2011 11:15 am EST

Focus: ETFS

Matt McCall

Founder and President, Penn Financial Group

The real sources of growth in the next few years will be in niches that would have been hard to invest in before ETFs came along, but now those vehicles exist, says Matt McCall, who shares a few of his favorites in this exclusive interview with MoneyShow.com.

Matt, you wrote a book called The Next Great Bull Market, and in there you talk about how to capitalize on some of the global developments. Given just all the events that have been happening around the world lately, how should investors capitalize?

Well, I think they have to turn to the emerging markets. What’s going on in Western Europe seems like it’s going to be lasting for the foreseeable future.

I really don’t see a lot of growth there. Because when you’re investing, you want to invest in growth, in my mind. There’s always a value play that comes in play as well, but I think you would be investing in growth and where we find growth in the world right now is going to be in the emerging markets.

One of the examples is Brazil. It’s one of the BRIC countries, one of the big four emerging markets. That economy has actually struggled in 2011…however, there is a subsector in there, the Brazil infrastructure.

There’s actually an ETF that tracks that, EGShares Brazil Infrastructure ETF (BRXX), that we own for our clients. The reason that we own that is coming up in 2014 they have the Soccer World Cup, which is major, and then 2016 they have the Summer Olympics coming to Brazil. The amount that they are going to be spending…there are estimates upward of $1 trillion to upgrade their infrastructure over the next four years.

It is mind blowing. Somebody is making money off that. We believe that the companies that make up this ETF will benefit from that, and so far this year the BRXX has out-performed the Brazilian Index dramatically, so we can actually see that that’s holding up better. When the emerging markets turn around, I think this will be a very big winner.

Any other emerging markets that are catching your attention lately?

Yeah. Actually, Southeast Asia has really been surprising to me—Indonesia, Singapore, Malaysia, Thailand. There is an ETF out there, Global X Asean 40 ETF (ASEA). It’s brought to you by Global X, I believe, and that invests in those four countries I just mentioned.

There’s also an ETF that invests just in Indonesia, which happens to be my favorite country right now: Market Vectors Indonesia ETF (IDX). Believe it or not, Indonesia is the fourth most populous country in the world. A lot of people don’t really realize that.

They expect GDP to grow over 6% in 2012. The thing about here in the United States and Western Europe, if we get 2% we’re going to be pretty darn happy next year. So I think there’s a lot of opportunity there. You have a very growing middle class that’s spending money.

Indonesia’s government is actually pretty darn stable. If you think about what is going on in our government and the governments in Western Europe and 2011 stock markets held up very, actually up for the year compared to Western Europe and a lot of the other developed nations being down.

You mentioned a couple of ETFs just now. Do you own these for your clients or personally?

We own IDX, which is the Indonesia one. We do not own the others.

Just to go along that line real quick, there is also an ETF we do own, which is the Emerging Market Consumer ETF (ECON). This invests in consumer stocks based on these emerging markets I just talked about.

The reason this will do real well is as the middle class grows in these emerging markets, a lot of that money is staying at home. You’re actually going to be investing in a grocery store, the auto companies that are based and are taking advantage of the home that is growing in the middle class.

So again, this is an ETF that has out-performed the emerging markets as a whole. It is companies you are never going to hear of. This is the beauty of an ETF—giving you access to this type of investment.

Any other particular sectors within the emerging-market universe that might be worth a look?

You know, this is crazy to say, but financials. If you look at financials in the developed markets, they’ve been getting hit and they have a lot of problems still on the balance sheet.

What’s going on? A lot of the emerging-market financials did not get messed up in the financial situation that went on in 2008 and 2009. They side-stepped that…but the problem is, they kind of got thrown out with the bath water. They’ve been beaten…and if these emerging markets are going to grow, they’re going to take advantage of that, because they’re supplying the capital for these emerging markets to grow.

If you believe in growth, you believe in the financials. I believe the symbol is EGShares Emerging Market Financial ETF (FGEM), if you want to invest in that.

And is that something you own?

We do not own that right now. I think there is still going to be some weakness for the remainder of this year, but eventually this will be a great long-term play to start scaling into.

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