3 Contrarian ETF Ideas

With the New Year underway, many investors are looking for the bull market in the U.S. stock market to continue. That being said, there is another group of investors looking to buy into the cheap, often shunned sectors within the market. Investors that attempt to zig when the herd is zagging are referred to as contrarians.

A few such "out of favor" ETFs that have the potential to break their downtrend in the coming 12 months are listed below.

Related Link: 4 Sector ETFs Nearing Support

SPDR Energy

Energy Select Sector SPDR (ETF) XLE is down 25 percent from its June 2013 high as spiraling oil prices hit the related stocks. Even though the performance has been terrible for the ETF, it has been able to outperform many of its peers.

The concentration on the largest energy stocks in the U.S. has helped lighten the blow due to lower oil prices. The ETF has 30 percent of its portfolio invested in Exxon Mobil Corporation XOM and Chevron Corporation CVX, two stocks that have been able to hold up better than the smaller rivals.

Guggenheim CurrencyShares Euro Trust

Guggenheim CurrencyShares Euro Trust FXE is trading at its lowest level since it began trading in 2006. The decline in the Euro led to FXE finishing 2014 with a loss of 12 percent. The potential for deflation in the continent along with slowing growth has led many analysts to believe more stimulus is the only option for the European Central Bank (ECB).

If that is the case, it will put more pressure on the currency and it could lead lower prices for FXE in the short-term. However, a rebound in 2015 could be a possibility.

Market Vector Russia

Market Vector Russia ETF Trust RSX has had its fair share of issues that include sanctions from the Ukraine situation, as well as oil prices at a five-year low. Not only has the country’s economy and stock market taken a hit, its currency (ruble) has gotten shellacked.

RSX has been attempting to build a base the last few weeks, but with oil continuing to fall and the Ukraine situation unsettled, the risk remains elevated for the ETF. That being said the country trades with a forward P/E ratio below 4.0, nearly half of its 10-year average, potentially setting RSX up as a great long-term value play.

Related Link: Russian ETFs Reacting To More Government Moves

The reason contrarian investing is often shunned is because it is much more difficult to buy when an ETF nears lows versus hitting a new high. However, over the long term, this type of strategy can pay big rewards for long-term investors willing to take on extra risk and move away from the herd.