The year that just passed was a great one for U.S. stock market investors. Marking the sixth year of the bull market run, 2014 saw the S&P 500 index rising from a low of 683 in early 2009 to 2,059 at the close of the market on December 31. This makes the current bull market the fourth longest on record.
The question investors are asking as we enter 2015 is whether the bull market still has any steam left. Right now, most signs are indicating that yes, the bull still has some room to run. A wide range of broad economic indicators — from falling unemployment, rising corporate profits and strong GDP growth to lower oil and gasoline prices and rising consumer confidence — are pointing to another potentially strong year for U.S. equities. However, we are off to a rocky start.
One way possibly to benefit from this bullish outlook for the New Year is to invest in exchange-traded funds (ETFs) that are well positioned to benefit not only from the rising U.S. equities market, but also from other macroeconomic developments around the world. ETFs are similar to mutual funds, but their securities can be traded on an intra-day basis like stocks.
Choosing the Right ETFs for Your Portfolio
There are currently about 1,700 ETFs for you to choose from, so how do you know which ETFs are the right ones for you? Here are 12 ETFs that appear to be well positioned for gains in 2015:
- SPDR S&P 500 ETF (SPY) — This is both the largest and the oldest ETF in the world. It provides broad exposure to the U.S. stock market via the S&P 500 as well as strength and stability, making it a solid bet if U.S. equities continue their bull run this year.
- iShares S&P 100 ETF (OEF) — This fund narrows the S&P 500 down to the largest 100 companies in the index, or mega-cap stocks. From a historical perspective, large company stocks have tended to perform especially well during the late stages of bull markets.
- ALPS Sector Dividend Dogs ETF (SDOG) —Another fund that is well positioned to benefit from a strong stock market in 2015, this provides exposure to high dividend-paying and undervalued stocks across a broad spectrum of market sectors. It offers the potential for both diversification and upside performance.
- iShares U.S. Preferred Stock ETF (PFF) — Preferred stocks offer a blend of both stock and bond characteristics, which can result in higher yields. This ETF could provide additional diversification by enabling you to gain exposure to both U.S. equity and bond markets.
- iShares MSCI USA Minimum Volatility ETF (USMV) — Of course, just because conditions seem ripe for another strong year for U.S. stocks does not mean there will not be sharp swings in the market during the year. This ETF is designed to minimize volatility in your portfolio and offer downside protection by screening out stocks with high-volatility characteristics and focusing instead on companies that are less dependent on overall economic growth.
- Global X SuperIncome Preferred ETF (SPFF) — While there are plenty of positive signs for the U.S. economy in 2015, one possible concern is how the slowing growth in many overseas markets could affect the domestic economy this year. If growth in the U.S. is dragged down by a slowing global economy, this ETF could help supplement your portfolio’s income, since it pays out dividends and may appreciate in value over time.
- Energy Select Sector SPDR ETF (XLE) — Energy prices took a beating in 2014, as did the stocks of many energy companies. However, this does not necessarily mean you should stay away from energy stocks in 2015. This ETF includes energy producers that have been able to maintain steady production and cash flow even with low oil prices. These companies should be able to ride out low prices for a while, and they will be in a great position to rebound sharply if energy prices start rising sometime this year.
- Vanguard FTSE Europe ETF (VGK) — While the S&P 500 and the Dow Jones Industrial Average both soared last year and are at or near all-time records, the same cannot be said of most European stock market indices. As a result, European stocks are currently priced at a discount as high as 40 percent compared to similar U.S. companies. This could make this ETF featuring large and mid-cap European companies a tempting buy. In addition, various quantitative easing (QE) programs in Europe could give stock prices a short-term bump.
- iShares MSCI Mexico Capped ETF (EWW) — Mexican stocks also had a tough year in 2014, so they could be in for a rebound. In addition, speculators have recently moved to a new all-time record short position against the peso, possible setting this ETF up for a strong year.
- Direxion Daily Russia Bear 3X ETF (RUSS) — Ongoing sanctions against Russia for its incursions into the Ukraine and plummeting oil and natural gas prices have pummeled the Russian economy, and few expect a drastic turnaround this year. This ETF uses derivatives essentially to bet against the Russian economy. The Finance Minister of Russia has predicted a recession this year if oil remains priced in the $60 per barrel range, which could make this ETF a strong performer in 2015.
- Market Vectors Gold Miners ETF (GDX) — Last year was not a good year for gold investors, either. Some expect gold prices to rebound in 2015, but this is far from certain. This ETF provides some leverage to a bet on rising gold prices by investing in gold mining companies, not in the precious metal itself. This has historically tended to magnify returns.
- ETFS Physical Palladium Shares ETF (PALL) — Palladium is a less well-known precious metal that could be positioned for strong run in 2015. One reason why is because auto manufacturers are responsible for about two-thirds of all palladium demand — the metal is an essential component of catalytic converters. With gasoline prices falling, auto sales are rising and projected to continue doing so this year. The projected 162 million ounce palladium shortfall this year will be the largest in three decades, which should keep prices for the metal high.
ETFs Offer Many Benefits
Due to their flexibility, diversification potential and low cost, ETFs can be a great tool for achieving your investment objectives in the new year. The key is deciding which ETFs are the right ones to buy. Consider whether these 12 ETFs might be the right additions to your portfolio for 2015.