Market Overview

More Selling? Embrace These ETFs (FXP, BGZ, HYLD)


More Selling? Embrace These ETFs (FXP, BGZ, HYLD)

Monday's losses for U.S. equities are certainly more tolerable than what was seen last Friday, but losses are losses and just two trading days into June it appears the sixth month of the year is picking up where May left off. There are 19 trading days left for stocks to get their acts together this month, but it's becoming harder and harder to be bullish on the broader market.

In fact, some would argue that now is the ideal to realize profits or cut losses on traditional long positions.

" Look at the news around the world, India is mired in a deep slowdown, China is mired in a fiscal mess and slowdown, Greece IS leaving the Euro, Spanish yields are already at unsustainable levels, the U.S. is looking at deficit ceiling issues and tax break expirations and there isn't a single central bank in the world that is politically or fiscally prepared to continue with mass bailouts," Street One Financial President Scott Freeze said in a note today.

From the long side, Freeze likes two inverse leveraged ETFs: The ProShares UltraShort FTSE China 25 (NYSE: FXP) and the Direxion Daily Large Cap Bear 3X Shares (NYSE: BGZ). FXP is the double-leveraged equivalent of the iShares FTSE China 25 Index Fund (NYSE: FXI). In the past month, FXP has surged over 29%, while FXI, the largest China-specific ETF, has slid 13%. FXP is now trading at its highest levels since December 2011.

BGZ is the triple-leveraged inverse play on the Russell 1000 Index. Technology, financial services and energy names combine for approximately 45% of that index's weight, implying BGZ is well-suited for the current environment as those sectors have been among the worst laggards in recent weeks. BGZ has jumped more than 22% in the past month.

Freeze also isn't too enthused with Treasuries. "We also predict a flight from fixed income and treasuries as the yields have fallen to levels that won't even keep up with inflation," he said.

Despite the recent controversy surrounding some junk bond ETFs, Freeze likes the iShares iBoxx $ High Yield Corporate Bond Fund (NYSE: HYG), the largest high-yield bond ETF. HYG yields 7.3%.

The Peritus High Yield ETF (NYSE: HYLD) was also highlighted in the note. That fund, which currently yields 10.6%, focuses on high yield debt securities that, via their coupons, generate a high current income stream, according to the fund's fact sheet. HYLD pays a monthly dividend.

Given that inverse and leveraged ETFs are not suitable for all investors, Freeze did highlight some traditional long ETFs that investors might want to consider at the moment. Those funds include the ALPS Alerian MLP ETF (NYSE: AMLP) and the newly minted Global X MLP ETF (NYSE: MLPA). AMLP currently yields just under 6%. He also likes the Global X SuperDividend ETF (NYSE: SDIV). SDIV, which will celebrate its first birthday on Friday, currently yields 9.83% and pays a monthly dividend.

The iShares Dow Jones Select Dividend Index Fund (NYSE: DVY) was also mentioned in the note. Home to 101 stocks and almost $9.9 billion in assets under management, DVY charges 0.4% per year. DVY is conservatively positioned as utilities account for almost a third of the fund's weight. Top-10 holdings include Chevron (NYSE: CVX), Kimberly-Clark (NYSE: KMB) and CenturyLink (NYSE: CTL). DVY yields 3.5%.

"We believe that HYLD, HYG, AMLP, MLPA, SDIV, DVY need to be in your portfolios for the next three months at least, and if you can be more aggressive, add in FXP, and any of the short products for the major market indices," Freeze added.

For more on inverse ETFs, please click HERE.


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