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Contrarian ETF Investors Savor Apocalyptic Headlines

25 October 2011 at 3:10 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

Factual headlines are often misleading. For example, a¬†popular¬†financial portal offered,¬†“October consumer confidence weakest since March 2009.” Most people might interpret this to mean that consumers aren’t spending and/or won’t be spending their money, resulting in¬†less revenue for economically sensitive corporations. However, actual consumer spending has been on the rise… 1.1% in September alone.

Equally important,¬†Retail ETFs have¬†reflected the actual spending data as opposed to the “confidence” data. The capital appreciation far surpasses the sector competition as well as the broader S&P 500 benchmark.

Retail Details Through 10/25/11      
          Approx YTD %
PowerShares Dynamic Retail (PMR)   10.9%
SPDR S&P Retail ETF (XRT)     9.0%
Retail HOLDRs (RTH)       5.7%
S&P 500 SPDR Trust (SPY)     -0.8%


Simply put, headlines can wreak havoc on human emotions. Consider the market’s late April peak. At that time, headlines tended to downplay Armageddon-like scenarios, while simultaneously talking about hiring as the last piece to the recovery puzzle. Bullish optimism outpaced bearish pessimism by 3 to 1 in the “Advisers Sentiment Survey.”

Flash forward to October of 2011.¬†Today you’ll see¬†headlines¬†that include Europe’s imminent doom¬†as well as China’s hard landing/bursting economic bubble. Not surprisingly, the same newsletter survey by Investors Intelligence¬†currently has far more bearish pessimism than bullish¬†optimism.

Indeed, the folks at¬†Investors Intelligence¬†will be¬†the¬†first to tell you that their survey is a “contrarian” indicator. It follows that¬†a¬†contrarian might look at 40% declines in¬†China ETFs and¬†consider some of the more favorable realities.

For instance, China PMI is rising and inflation is moderating. Moreover, if GDP growth slows more than authorities prefer, they have ample room to loosen monetary policy and/or utilize a portion of vast cash reserves in a large-scale stimulus package. The likely result? ETFs like SPDR S&P China (GXC) with a P/E near 9 would probably skyrocket.

GXC 50

It’s not that the mainstream media intends to mislead investors. Yet the more¬†pessimistic we feel, the more negative the headlines; in turn, the¬†relentlesss nature of “bad news”¬†tends to move folks from pessimism to abject fear.

Obviously, not everyone has Buffett-like wiggle room to “buy when¬†others are fearful, sell when others are greedy.” The Oracle of Omaha¬†can afford to be wrong.

Nevertheless, if you’re¬†willing to use stop-limit loss orders to protect positions, rather than succumb to the latest Greek tragedy to hit the¬†newswires,¬†there are plenty of contrarian possibilities. Consider Retail HOLDRs (RTH) or SPDR Retail (XRT) for continued consumer spending; recognize China’s flexibility with an allocation to SPDR S&P China (GXC) or an indirect investment via exporting powerhouses like Australia (EWA) and Malaysia (EWM).

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Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFseasier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

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