In continuing this thread (not only here but on greenfaucet and TheStreet.com) about sectors and proxies and such...I've mentioned a few times over the years that it would become easier to build very narrow portfolios with very specific effects by using ETFs (this was not something particularly clever but more of a statement of the obvious), certainly this has come to pass and and will continue to evolve further.
The global shipping ETF I mentioned yesterday is the most recent example of the potential.
One aspect of this that I write about often is funds being proxies for other things. One example I mentioned a few days ago is the possibility that the WisdomTree South Africa Currency ETF (SZR) could be a proxy for gold.
For now this does not exist as gold, measured but GLD which is a client holding, seems to almost have a negative correlation. If or when South Africa gets a handle on some of its imbalances and inflation the correlation between the two could go up.
If it does happen (I'm not trying to assign any probability with this post) then think about what what SZR would become; something that tracks gold and yields 6 or 7%. This type of thing would be of interest even if it ends up not being for you.
As you read that you might wonder doesn't the Australian dollar already do that? To a point, yes it does but as highly as I think of Australia, and I do own the currency, this becomes a point where people risk allocating too much to one country.
Another, IMO, example of a proxy in the making might be the New Zealand Dollar ETF (BNZ). Many people think of the kiwi as being a commodity currency (I referred to it this way in the early days of this site) but that is not quite right. New Zealand produces a lot of dairy products, meat and wool. The government is very proactive in trying to increase its exports, it has a free trade agreement with China, and it seems to me that the kiwi could be a proxy for the burgeoning of the food theme without taking on the same volatility as an agriculture stock. I've had a lot of luck with Monsanto (MON) but that type of stock is not right for everyone.
The kiwi faces plenty of obstacles pertaining to deficits and imbalances but these issues are not new and have not crippled the currency (yet?). For now I do not own BNZ and I don't know if I will. The idea of BNZ being a low impact way to buy into the global food theme is just a bit of process/theory.
This post isn't about buying SZR or BNZ it is about recognizing themes and exploring whether there might be any other ways in that could increase volatility or decrease it depending on your own tolerances or the maturity of the cycle.
4 comments:
Regarding SZR, a long time "cyber-friend" I know there says they are a slow road to Zimbabwe.
Your comment is excellent about thinking more deeply how specific ETF's (or even open end funds) could be used.
Zimbabwe? ruh roh.
roger,
i have owned the aussie dollar through fxa for some time--it pays a very nice yield and the aussie dollar continues to rise versus the us dollar. but australia now runs a trade deficit and with the purchasing power of the aussie dollar almost 40% higher than the us dollar (according to research at the u of british columbia) and higher than the euro, i am wondering how much further it can go (same with the euro as well, by the way). what triggers might make you concerned about the aussie dollar?
--gjg49
add to that the visibility that the rate hikes are either done or just about done.
for now i am not concerned. Australia is a commodity country at a different point in its economic cycle. that will not change.
as far as how high it goes; too many people are calling for parity (or parody, lol) with the greenback. so much so that I would be surprised if that was the next stop as opposed to 93 again but who knows.
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