ACCESSING ALTERNATIVE
INVESTMENTS THROUGH
ETFS
Presented by
Matthew McCall
President, Penn Financial Group
www.PennFinancialGroup.com
Alternative Investment Themes
Inflation
Commodities
Currencies
Infrastructure
Green Energy/Water
Alternative Investments
Inflation
The investment community is torn between inflation and deflation. I feel
inflation is a near certainty in the coming years.
Fed late to the game – will keep rates low for too long
"The duration of the extended period prior to policy firming might last for quite
some time and could even increase if the economic outlook worsened
appreciably or if trend inflation appeared to be declining further," the minutes
said.
Factors Leading to Inflation:
The DC Printing Press - US government is flooding market with dollars
History On the Side of Inflation - Countries that have printed money to pay for
programs/problems (in this case bailouts) have encountered inflation
In the Numbers – Look at the action of gold (all-time high in late 2009), TIPS (1-
year high in 2009), and Food
Excluding the cost of shelter, consumer prices were up 3.4% from a year earlier in
February
Inflation ETFs
SPDR Gold ETF (GLD)
$1000 - $1500 range in 2010; buy GLD near $105 for a move towards
$150/share
iShares TIPS BOND ETF (TIP)
Will outperform normal US bonds; inflation hedge
Dividend Yield 5.0%
Claymore/Beacon Global Timber ETF (CUT)
Basket of 30 international stocks in the land, timber, and paper industries
Will benefit from inflation
SPDR International Govt Inflation-Protected Bond ETF (WIP)
Countries with highest allocation: UK and France
UK inflation rose to 3.5% in January, fastest annual pace in 14 months
France hit 1.3% in February, 1-year high
Inflation (GOLD)
Inflation (GOLD)
Three possible outcomes for Gold:
If the economy weakens and the government continues to
print money and spend
= GOOD FOR GOLD
If the economy improves at an above average pace it will
lead to inflation
= GOOD FOR GOLD
If the economy recovers at a sluggish pace
= BAD FOR GOLD
Commodities
Three factors that could cause commodities to rise
Weak US Dollar
Increased Demand, Stagnant Supply
Inflation
Specific Sectors
Base Metals
Copper, Aluminum, Steel, etc.
Energy
Oil, Nat Gas, Coal
Agriculture
Wheat, Corn, Rice, etc.
Precious Metals
Gold, Silver, Platinum
Miscellaneous
Cotton, Coffee, Cocoa, etc.
Commodities (Base Metals)
PowerShares Base Metals ETF (DBB)
Composed of 3 metals: Copper, Aluminum, Zinc
Benefits from Inflation, economic rebound, and
weak US Dollar play
China Play
Market Vectors Steel ETF (SLX)
At 18-month high on pricing announcement last
week out of China
Top Holdings: VALE, RTP, MT
Commodities (Energy)
United States Oil ETF (USO)
Tracks the price of oil futures
First Trust Natural Gas ETF (FCG)
Composed of 31 NatGas stocks, top holdings Pioneer
(PXD) and Apache (APC)
Up 67% in last 12 months vs. UNG -49%
United States Gasoline ETF (UGA)
Tracks the price of gasoline futures
Market Vectors Coal ETF (KOL)
Only 29% of stocks from the US
Top Holdings: ANR, BTU, CNX
Commodities (Agriculture)
Market Vectors Agribusiness ETF (MOO)
Composed of a basket of agricultural chemical stocks
Top Holdings: POT, MOS, MON, SYT
iPath Grains ETF (JJG)
Composed of: Soybeans, Corn, Wheat
The “weather factor” in its favor. Not enough rain, too
much rain, etc = Helps JJG
COMING SOON: Teucrium Corn ETF (CORN)
Currencies
An asset class often overlooked by investors
Can be used as a hedge in a bear market
In 2008 Rydex CurrencyShares Japanese Yen ETF
(FXY) was up 22%; Swiss Franc ETF (FXF) up 6%;
Euro ETF (FXE) only down 4%
Long-Term Trend for the US Dollar remains
bearish
Recent rally in the US Dollar Index can be attributed
to the weakness in the Euro
Currencies (US Dollar Index)
Currencies (?????)
Currencies
WisdomTree Emerging Currency ETF (CEW)
11 emerging market currencies – equally weighted
Includes: Brazil, China, India, Chile, Poland, etc.
Will benefit from a weak US Dollar, but also from much
higher money market yields in the emerging countries
(some as high as 7%) vs. low rates in the US
PowerShares DB US Dollar Bearish ETF (UDN)
Offers results that are the inverse of the US Dollar Index
Rydex CurrencyShares Canadian Dollar ETF (FXC)
Tracks the action of the Loonie versus the US Dollar
Infrastructure
Worldwide stimulus packages (US, China)
Global Infrastructure spending estimated to
reach $35 Trillion over the next 20 years
Needs versus Wants
India expects to spend $1 trillion over the next five
years (double their current spending)
Treasury Secretary Geithner said last week
he is prepared to spend more of the 2009
stimulus on infrastructure
Infrastructure
PowerShares Emerging Markets Infrastructure ETF (PXR)
Top Countries: China, Brazil, South Africa (sports)
iShares S&P Global Infrastructure ETF (IGF)
40% Utilities, 40% Industrials, 20% Energy
US makes up 23% of the portfolio
Emerging Global Shares China Infrastructure ETF (CHXX)
Real Estate Mgmt & Development 23%, Mining 15%, Construction 15%
Largest Holding is China Railway; 1.1% Expense Ratio
Emerging Global Shares Brazil Infrastructure ETF (BRXX)
Diverse: 14% Mining, 14% Telecom, 12% Utilities
Largest Holding is VALE; 1.1% Expense Ratio
Green Energy/Water
2008 and 2009 were difficult years for the
alternative energy stocks; water stocks were
able to recoup a small portion of their losses
in 2009; 2010 has not begun well for the
sector
Both sectors are “real trends” and not fads,
however they are long-term investment
themes that require patience
Green Energy/Water
PowerShares Global Water ETF (PIO)
Invests in stocks that generate at least 50% of their revenue from
water-related activities
Exposure to developed and emerging countries around the globe
Claymore Global Solar Energy ETF (TAN)
Basket of stocks in the solar energy sector
ETF and sector has lagged for the last 2 years
PowerShares Global Progressive Transportation ETF
(PTRP)
Companies engaged in developing cleaner, less costly, and
efficient means of transportation
Top Holdings: BYD Corp, Clean Energy Fuels (CLNE)
Alternative Investments
Investments that can hedge a portfolio in
uncertain times
Move independently of the equities market
High-Yielding investments
Flying Under the Radar
Alternative Investments
Fiduciary/Claymore MLP Fund (FMO)
Invests in Master Limited Partnerships (MLPs) with the majority in the oil & gas pipeline
sector
Dividend Yield = 7.0%
iShares S&P US Preferred Stock ETF (PFF)
Invests in a preferred stocks with a heavy exposure to the financial sector (85%)
Dividend Yield = 5.9%
PowerShares Private Equity ETF (PSP)
Invests in publicly listed private equity firms
2/3 of the stocks are located outside the US
LUK, BX, AINV are in top 10 holdings
ProShares Short 20+ Year Treasury ETF (TBF)
Returns the inverse of the long bond
Leveraged & Short ETFs
Proceed with CAUTION!!
30-Year Bond Yield
ACCESSING ALTERNATIVE
INVESTMENTS THROUGH
ETFS
Presented by
Matthew McCall
President, Penn Financial Group
www.PennFinancialGroup.com