Top Five ETFs for 2021’s Zero Interest Rate Market

Greg Canavan

Greg Canavan is the Editorial Director of Port Phillip Publishing and Fat Tail Media, and Editor of the Greg Canavan’s Investment advisory newsletter.

Over the years, Greg has developed a unique investment philosophy that embraces the value of ignorance. He believes that most people get into trouble in the markets by succumbing to their biases or holding on to their views despite being wrong.

He believes the best way to deal with this is to admit that you really know very little. Therefore, investors need to put their ego aside and listen to what the market is truly saying.

Greg does this through evaluating stocks based on fundamental factors AND charting analysis. The charts contain a wealth of information if you know how to read them properly, and are a great way to crosscheck your opinions based on fundamental analysis.

For more information about his work, you can check out his paid services:

Dear Reader,

Greg Canavan here. Today I’m going to give you a quick look at five ETFs I like for 2021’s zero interest rate market.

If you are here, you may already have a taste for ETFs or have heard about what they can do for your portfolio.

But for those who don’t know, an ‘exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock.

There’s a mind-boggling array of ETFs out there — giving you access to a huge array of different types of investments.

And I’ll be honest with you; I don’t recommend many ETFs to subscribers of my service.

That’s because I’m an out and out stock picker.

I go off solid fundamentals and look for value gems that I believe the market is mispricing.

That being said, there are some ETFs out there that I think are uniquely placed to benefit from the zero-interest rate market environment we are dealing with in 2021.

To be clear — these are in no way recommendations. I do that in my paid service, aptly called Greg Canavan’s Investment Advisory.

I’ll give you a breakdown of my top five ETFs in just a moment.

What I really want you to think about now though, is what we are seeing in the global financial system this year.

This is important context for the underlying reasons I like these five ETFs.

So, let’s dive into that.

2021: The year of the central banker

Well, they’ve certainly gone and done it this time.

A no holds barred approach to propping up markets driven by the most extreme experiment in monetary policy ever.

You’ve heard all about it, I’m sure.

But it’s about what you do from here on out.

I suspect there’s a large cohort of Aussie investors out there that missed out on the huge rally since March.

I don’t blame them; there was a lot of uncertainty to unpack.

Is this virus permanent? Is there a second crash around the corner? Have I missed the boat on tech darlings like Afterpay Ltd [ASX:APT]?

What I can tell you with near absolute conviction though, is that 2021 will be driven almost entirely by the whims of central bankers.

Whether that’s negative rates, yield curve control, huge asset purchases or even the launch of central bank backed digital currencies (CBDCs) — their playbook is as big as it is whacky and misguided.

And the one thing they’ve made abundantly clear this year is that they don’t give a damn about savings and cash positions.

Which is why I think we will see a huge amount of cash flushed into the market — in short, a ‘cash panic’.

You may be able to capitalise on this though, by making a handful of smart and simple moves — something I outline in my Life at Zero summit.

In this program I share my number one stock to consider this year — so do check that out.

But by now I’m sure you are chomping at the bit for those ETFs, so here they are — a quick summary of the ETF followed by a bottom-line justification.

ETF #1: The gold train hasn’t left yet

The ETF I’m profiling here is VanEck Vectors Gold Miners ETF AUD [ASX:GDX].

You can see their top 10 holdings below:

Source: vaneck.com.au

Those are massive companies and there are a couple big Australian gold miners in there too.

I’ve had some success picking individual gold stocks — and gotten some wrong as well.

But the underlying story remains the same.

Inflation hedge, store of value, a way to exit fiat and more than a millennium of trust behind it.

Also check out the chart for GDX too:

Source: tradingview.com

My fusion method is a mixture of fundamentals and charting — and this is what I’m seeing on this chart…

Namely, the beginnings of reversal set up. Two higher lows and a levelling off of a downtrend on the moving averages.

I think gold is primed for another leg higher, which could in turn drive GDX up.

So GDX is definitely one for the watchlist.

ETF #2: More volatile but thematic is right

This one is called BetaShares Global Cybersecurity ETF [ASX:HACK].

You can see the top 10 holdings below:

Source: Betashares

Now, it’d be a big stretch to say that Cisco Systems Inc [NASDAQ:CSCO] and Accenture Plc [NYSE:ACN] are true blue cybersecurity companies.

They are much more tech conglomerates than anything else — but they provide an element of balance to HACK’s holdings.

The thing with HACK is the thematic is spot on.

Cybersecurity is perhaps the theme of the day right now.

A lot of it comes down to mischievous operations out of Russia and China.

The SolarWinds hack in the US may’ve been the largest and most complex hack ever, reaching to the highest echelons of the US government — and was undetected for months.

Meanwhile, Australian government communications continue to be the target of hackers (likely China given the current diplomatic beef).

As such, I think the bottom-line justification for this ETF is strong.

The companies that can offer solutions in this area stand to benefit from increased spending and more contracts going to the sector.

A quick look at the chart over the last five years shows the following:

Source: tradingview.com

A series of higher lows, with a very volatile period around the outset of the pandemic. There’s clear risk here as these are tech companies that rely heavily on uncertainty.

But I don’t see our hyperconnected world getting any safer going forward. So HACK is worth a look.

ETF #3: Unpopular opinions are often still true

I’ll be perfectly honest — I’m bullish on oil. It’s certainly unpopular and contrarian given the renewables revolution. But that doesn’t mean it can’t later turn out to be a correct read on the situation.

A free money driven recovery and a vaccine rollout have the petroleum driven-world primed to return to normal.

Throw into the mix a Biden administration that is potentially more hawkish in the Middle East than Trump ever was, the threat of drone strikes on Saudi oil fields (again), and increasingly bellicose relations between Israel and Iran’s proxies/security forces — it all adds up.

So, the ETF to check out is BetaShares Crude Oil Index ETF — Currency Hedged (synthetic) [ASX:OOO].

It’s a 100% oil ETF that ‘provides exposure to the price of West Texas Intermediate (WTI) crude oil futures, hedged for currency exposure.

Now there are risks — which can be directly linked to Biden administration moves.

But WTI is just too important to the world to ignore — that’s the bottom-line justification. Keep OOO in mind.

ETF #4: The Brits don’t quit

Think of this one as a potential balancing force in your portfolio. My colleague, friend and co-editor of The Rum Rebellion Vern Gowdie likes this one.

It’s called BetaShares British Pound ETF [ASX:POU], and its aim is to ‘track the performance of the British pound against the Australian dollar (before fees and expenses).

Currency movements are notoriously hard to get a handle on.

Consider this though — after a brutal lockdown, the UK moved into a reopening phase this April.

Its economy shed the most in three centuries — with GDP down a whopping 9.8% in 2020.

But that pain, and a vaccine rollout faster than any of their European counterparts (many of whom are still in lockdown) has them poised to rebound quickly.

Check out the chart for POU below:

Source: tradingview.com

Looks to be bottoming out there, and my reasoning on this one is that the AUD can’t keep up the head of steam it’s got going forever.

Yes, Brexit looks to be a messy affair playing out over multiple years.

But I have a nagging suspicion that once the dust settles from this pandemic the UK is uniquely positioned to come roaring back.

I base that partly on the ineptitude of the bureaucrats in Brussels, and an even larger part on the meddling of the European Central Bank (ECB).

Currencies work in concert, and the attractiveness of sterling may improve in light of the euro’s failings — that’s the bottom-line justification.

Check out POU if you are looking for a way to get into currencies from a contrarian perspective.

ETF #5: Trust a computer

This is a left-field one but one worth considering if you are into value stocks like I am.

It’s called Vanguard Global Value Equity Active ETF (Managed Fund) [ASX:VVLU].

This is the way it works:

‘Vanguard uses a proprietary quantitative model to evaluate an investment universe comprised of large, mid and small cap equity securities from developed markets across the world, which includes a diverse representation of companies, market sectors and industry groups. This investment universe is drawn primarily from equity securities included in the FTSE Developed All Cap Index and the Russell 3000 Index.

‘Vanguard’s quantitative model implements a rules-based active approach that aims to assess the factor exposures of securities, favouring equity securities which, when compared to other securities in the investment universe, have lower prices relative to their fundamental measures of value (measures may include price-to-book, price-to-earnings ratio and price-to-operating cash flow).’

In a nutshell, a computer driven value model, which picks from a huge array of companies in developed countries.

It’s on a serious run in the last year too:

Source: tradingview.com

Rising bond yields — something I’ve covered in depth in my advisory service and The Rum Rebellion, triggered a pivot to value.

Not a huge pivot, but a pivot I think will play into smart investors’ hands in the coming years of zero rates.

The bottom-line justification is that value is back on the menu around the world — all backed by solid fundamentals and existing, real cash flows.

I believe this is just the start of a much longer-term trend.

If you make a handful of smart moves with your money today — the next few years could be some of the most prosperous and lucrative of your entire life.

I’m not talking about buying super speculative stocks either. You just need to understand what’s really going on right now…and make a few simple moves.

That’s why I want to let you know about my free ‘Life at Zero’ event I recently recorded where I shared my best ideas on how to get ahead of what’s coming next.

It may just be the most important event I’ve taken part in after my 20 odd years in financial markets.

Find out the surprising way to turn zero interest rates to your advantage — and my number one Aussie stock to consider for 2021 — by clicking here to watch the replay now.

Cheers,

Greg

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