By Kirk Spano
Last Friday morning, many markets fell sharply based upon the Brexit vote. The Brexit was one of the items in my long list of potential market disruptions that I had noted in my last quarterly letter to clients.
In my opinion, the Brexit is a symptom of the "slow growth forever" that I have talked about here and here, as well as, on my blog . People are frustrated that the global economy continues to be slow and that wealth flows to relatively few. This vote, even if it had gone the other way, underscores that people want answers to their anxieties.
For markets, this event is likely more of a catalyst for a summer corrective period than a one-day event. For those who don't panic, there will likely be some opportunities to invest some of the cash I have urged people to accumulate the past year as the world and markets adjust to "slow growth forever" and pick out tomorrow's winners.
The winners of tomorrow won't be the mega-caps that have led in the past couple years. Nor will the winners be broad indexes. The winning themes we are following at my investment letter Fundamental Trends are these:
Companies and sectors that benefit from secular and disruptive change, such as aging demographics, climate change and millennial household formation, will do well — there are many sub-themes.
Companies and sectors that receive government and central bank support will benefit whether they really deserve to or not.
Companies and sectors that exhibit value pricing in the face of hyperactivity by momentum traders will set up to be the next momentum plays.
Conversely, companies and sectors that do not have at least some of those supportive factors will likely stagnate or decline in an era with flat productivity, fewer workers to dependents, high global debt, damaged market structures and an emotional populism that focuses well on problems but offers little in clear-headed solutions.
As discussed here, we had prepared for a drop with some hedges, including some puts on the iShares Russell 2000 ETF /zigman2/quotes/209961116/composite IWM -2.25% which we talked about here on MarketWatch only nine weeks ago. As we’ve seen a rally since, the opportunity to build hedges for summer and autumn will make sense.
What forward-looking investors with cash to invest ought to be doing is looking for opportunities to start scaling into the types of investments that will do well in the "slow growth forever" world I keep describing. Here are a few ETFs that I like on further correction:
SPDR Select Health Care ETF /zigman2/quotes/205918244/composite XLV -0.18% due to aging demographics and its dividends.
Powershares QQQ /zigman2/quotes/208575548/composite QQQ -1.70% which contains a heavy slug of technology and biotechnology that will continue to be disruptive and supportive of this top performing diversified ETF.
Guggenheim Solar ETF /zigman2/quotes/210041821/composite TAN -3.45% which is riding one of the fastest-growing markets in the world and will soon benefit from consolidation in the industry.
First Trust Natural Gas ETF /zigman2/quotes/209055321/composite FCG -3.98% which holds shale gas companies poised to rebound on industry consolidation, and, rising oil and gas prices. Of note is that the fund has replaced many of last year's financial unsound stinkers.
WisdomTreee Europe Hedged Equity ETF /zigman2/quotes/207911216/composite HEDJ +0.18% which will benefit from a falling Euro and ECB stimulus. It pays a good dividend and offers diversification.
I know it is scary to invest when things seem dark, but it usually the right thing to do. For those of you who are fully invested, rallies are opportunities to trim, as high growth rates are never coming back and the markets will eventually head further down than last week.
Disclosure: Subscribers to Kirk's investment letter Fundamental Trends have previously been recommended TAN, GLD and puts on IWM. Certain clients of Bluemound Asset Management own TAN, GLD and puts on IWM. Spano and clients of Bluemound do not plan any transactions in the next three trading days, however, have limit orders entered for all the ETFs listed in today's article that could trigger on market volatility. Opinions subject to change at any time without notice.