More ETFs For QE3 (XHB, XES, FXA)
It's beginning to feel a lot like QE3 everywhere you go. Pilfering lines from Christmas classics aside, seriously, there have been hints that the market might yet be treated to another round of quantitative easing courtesy of the Federal Reserves. The hints are there, one just needs to know where to look.
Pimco's Bill Gross recently took to Twitter to say the Fed may hint at QE3 next month. Even though Fed Chairman Ben Bernanke has offered no overt sign he wants to engage in another round of bond buying, he hasn't come right out and said QE3 is off the table, either.
Earlier this month, Morgan Stanley's Vincent Reinhart said there's a 50-50 shot of QE3. Not great odds, but not terrible, either. Wells Fargo senior economist Mark Vitner said late last month that there's a "very good chance" of QE3 this spring, according to a Bloomberg interview.
Assuming those predictions prove accurate, there are ETFs that will benefit from QE3.
SPDR S&P Homebuilders ETF (NYSE: XHB) XHB and its rival, the iShares Dow Jones US Home Construction Index Fund (NYSE: ITB), have been two of the top-performing sector funds in 2012 and that's without the benefit of more QE. Generally speaking, housing data has been decent, if not solid, though the last few data points have been a tad below estimates. The Fed could opt to focus its bond-buying efforts on mortgage-backed securities and agency mortgages as a way of bolstering the residential real estate market.
Should that happen, another ETF that could benefit might just be the...
PIMCO Total Return Exchange-Traded Fund (NYSE: TRXT) The newly minted TRXT does have some critics but the ETF has almost $257 million in assets under management and it's only a month old. Earlier this year, Gross raised the percentage of mortgage securities in the Total Return mutual fund to 52% from 50% and while TRXT is not a carbon copy of the mutual fund, it is heavy on mortgage securities.
SPDR S&P Oil & Gas Equipment & Services ETF (NYSE: XES) Oil services stocks and ETFs have been savagely repudiated in recent days. XES is down 7% in the past month. The rival Market Vectors Oil Services ETF (NYSE: OIH) is down 8.3% over the same time. Arguably, oil prices don't need another round of quantitative easing the way that some would say gold prices do, but this much is clear: When QE2 started in November 2010, XES was trading around $32. By the time it ended in June 2011, the ETF had gained roughly 25%.
CurrencyShares Australian Dollar Trust (NYSE: FXA) Of course we could put the PowerShares DB Dollar Bearish (NYSE: UDN) here because the reality is no one in Washington really cares about a strong dollar anymore and UDN rose about 5% thanks to QE2. On the other hand, FXA jumped 10% from the start to the end of QE2. The Australian dollar is a perfect risk on currency and QE3 could validate the risk on environment.
FactorShares 2X: Gold Bull/S&P500 Bear (NYSE: FSG) This is what FSG does, according to the FactorShares Web site: FSG "is a leveraged spread ETF designed for investors who believe gold will increase in value relative to large-cap U.S. equities in one day or less."
Theoretically, QE3 should be a boon for both gold and stocks, so it would be prudent to play that theme over a longer holding period with a plain vanilla gold ETF, but FSG is worth an occasional one-day tryst when gold resumes its bullish ways. Just be advised FSG's volume can be light.
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