Invest in the Dogs of the World

by Carl Delfeld

At this time of the year, you can count on gurus and pundits to deliver an avalanche of two types of articles.

The first is predictions for 2013 that, I’ll admit, have a chance of becoming true.

The second is lists of what markets performed best during the previous year, suggesting that you better jump on the bandwagon or you’ll miss the boat.

And if you follow this strategy, the following exchange-traded funds (ETFs) would be on your buy list:

  • The Dow Jones U.S. Home Construction Index (NYSE: ITB), up 80%.
  • The usual grouping of emerging markets that produced eye-popping returns. This year it was the iShares MSCI Turkey Index (NYSE: TUR), up 61.8%, the EG Shares India Consumer (NYSE: INCO), up 55%, the iShares MSCI Philippines Investable (NYSE: EPHE), up 48%, and the iShares MSCI Poland Investable (NYSE: EPOL), up 39%.
  • The Market Vectors Biotech (NYSE: BBH), which jumped up 51%.

Now, some of these ETFs may continue to surge in early 2013. But chances are greater that they’ll level off, or even pull back.

Having an independent streak as deep as the Grand Canyon, I suggest you take a different tact…

Look for the Laggards

For country-specific funds, look at the iShares MSCI Brazil Index (EWZ), down 1.3%, and the Market Vectors Russia Small-Cap (NYSE: RSXJ), down 6%.

And while gold investors have done okay this year, gold explorers and miners have been in a big funk. Rising production and operating costs have driven the Gold Explorers ETF (NYSE: GLDX) down 37%.

The gap between gold prices and gold mining shares is at an all-time high, and will likely narrow. You could do even better (albeit with greater risk) by investing in individual gold mining stocks that have the lowest production and operating costs.

But coffee may be an even better bet than gold miners. Due largely to a bumper coffee crop in Brazil, the Dow Jones-UBS Coffee ETN (NYSE: JO) was down 43% in 2012. What the weather will be like in Brazil in 2013 is beyond me, but I do know that demand for coffee is steadily rising throughout the world.

My own coffee habit goes back to my student days in Japan. Imagine my surprise when I found more coffee shops per block in Tokyo than bars in my hometown of Milwaukee.

I had thought Japan, like much of Asia, was a land of tea drinkers. Turns out, with westernization and rising incomes, the Japanese came to love coffee - provided it was laden with milk and sugar.

Today, Japan’s per capita coffee consumption is 75% of America’s, and still trending upwards. From 1980 to 1995, coffee consumption in Japan was up 300%, in South Korea a stunning 1,800%... And Taiwan’s coffee consumption has quadrupled over just the past four years.

Then there’s China, a country at a very early stage of this promising growth trajectory.

The upside potential for an explosion of demand can be summed up with one fact: My three cups of coffee a day is more than the average Chinese person drinks in a year!

So, my advice for those with an independent streak is: Take some winnings off the table, and add a dash of coffee and gold miners to your portfolio.

Good Investing,


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