Gearing Up Your Portfolio For A Prosperous 2012 With These ETFs (EPV, GLD, SCO, DIG, UGL, DUG, FXE)

Monty Agarwal: 2011  has been a challenging year for a lot of investors, amateurs as well as  professionals. Buy and hold mutual fund type strategies have simply not worked.  Trends have disappeared too and have been replaced by sideways markets that see  monstrous moves — in either direction — in the blink of an eye.

In this  environment, trend followers and even fundamental analysts have suffered. And I  don’t see this changing any time soon.

That’s because the European Union (EU) refuses to realize the gravity of the financial mess they’re in. And unless they devalue the euro (NYSEARCA:FXE) by printing euro bonds they,  along with the rest of the global economies, will continue to be sucked into  the black hole of recession.

So what  are you supposed to do?

I’ve been  a hedge fund manager for several years. So let me give you one of the hedge  fund strategies that has worked for me: The ‘long/short’ approach.

In this  approach you can take advantage of the market turmoil by pairing trades. In  other words, buying an asset that you feel is cheap and taking an inverse  position in an asset that you feel is expensive.

Now here are a two ideas using this strategy that I feel could help grow as well as preserve your portfolio in 2012.

Idea #1— Long Africa, Short Europe

As  you can see in the chart below, over the past 10 years the African markets have  outperformed the U.S. market as well as the emerging markets.

Here’s  why:

  • Africa is rich in natural resources,
  • Young demographics leading to rising  domestic consumption, and
  • Increasing capital inflows from smart  money.

Yet very  few people are even aware of it!

I  think the Nile Pan Africa Fund (NAFCX) is one of the easiest ways to participate in Africa’s boom. The fund normally invests in African companies, securities issued by or  guaranteed by African governments, their agencies and instrumentalities, and  African multi-national organizations.

For  the short side of your position, clearly the biggest basket case in the world right  now is European equities. As the governments in Europe adopt severe austerity  measures, we’re witnessing shrinking GDPs. This growth reduction will affect  the corporate earnings, which will translate into lower stock prices.

To  take advantage of the chaos in Europe, I suggest the ProShares UltraShort MSCI  Europe (NYSEARCA:EPV). This exchange traded fund (ETF) seeks  daily investment results, before fees and expenses, which correspond to twice  the inverse of the daily performance of the MSCI Europe Index. That means for  every 1 percent the index falls, you stand to make 2 percent.

Another  benefit of taking a position through EPV is that it is denominated in euros. Therefore,  as the euro comes under pressure when the European Central Bank (ECB)  eventually devalues the euro, it will add another kicker to EPV.

Idea #2—Long Gold, Short Oil

Gold has been the safe haven of choice against  depreciating currencies, falling stock markets, sovereign debt defaults and  geo-political tensions. And as the predicted catastrophic environment unfolds, gold  is bound to go higher.

Additionally, once the ECB starts  issuing euro bonds, which is just a matter of time, it will imply a devaluation  of the euro and a flight to gold.

SPDR Gold Trust (NYSEARCA:GLD) is the world’s largest gold ETF. And I can’t think of a better way for you to get exposure to  gold without the delivery and storage hassles normally associated with owning  bullion.

But a position in GLD will not do well  if the U.S. dollar starts to rally. Therefore to hedge this risk, consider  taking a short position in oil.

OPEC has stated that they don’t want to  see oil rise much higher than $90 … as a higher price would sharply reduce  the demand, which would hurt OPEC. Additionally, there is no growth in the  developed markets as well as in Asia, which is trying to slow its growth. So oil  will have a very hard time rising.

You don’t have to short oil directly. Instead there  are a handful of ETFs that can get you positioned with a fraction of the risk.  My favorite is the ProShares UltraShort DJ-UBS Crude Oil (NYSEARCA:SCO).

This fund is designed to provide twice  the inverse of the daily performance of an index that tracks crude oil prices.

These  give you some examples of trades that hedge fund managers like to establish. Of  course the weight of the pairs needs to be changed from time to time based on  the market conditions, which is what I do in my Million-Dollar Rapid Growth Portfolio.

And I  feel that if you take a prudent approach such as this one, you should be able  to grow and protect your wealth as we go into 2012.

Best  wishes,

Written By Monty Agarwal From Money And Markets

Money and Markets (MaM)is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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