Give Wall Street a little credit - if there is a demand for a product, they will meet it. If there is no demand for a product, they will figure out how to create that demand. With investors back out of their bunkers and looking to put money to work, Wall Street and Main Street have been working overtime to meet that demand. While not all of these ideas are new per se, many are seeing a resurgence in investor interest and new themes and sub-types are emerging to siphon off some of that demand. (To learn more, check out The Wall-Street Animal Farm: Getting To Know The Lingo.)
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The idea that gold is pretty popular these days is hardly new, but gold-bugs are getting increasingly inventive. The Market Vectors Gold Miners ETF (NYSE:GDX) has lagged the SPDR Gold Shares (NYSE:GLD) of late, but the Market Vectors Junior Gold Miners ETF (Nasdaq:GDXJ) has been hot.
Going a step further, would-be investors are apparently trying to get more of the actual metal in their hands. Demand for minted gold coins continues to run hot, with many mints forced to limit order sizes to see that no customer goes away entirely empty-handed. And now this - gold-dispensing ATMs are on their way to the U.S.
Details are still scant and sketchy, but these machines dispense gold bars (in sizes ranging from one gram to 28 grams (one ounce), with the machines updating the gold price every 10 minutes. There is no word on the mark-ups that go with this service, but it seems fair to assume that they will be high, as retail gold prices often incorporate generous margins for the seller.
While the no-fee ETF arms race between major brokerage houses like Fidelity and Charles Schwab (NYSE:SCHW) began a while ago, it shows no sign of letting up. Brokers are increasingly trying to one-up each other by offering a larger and larger number of ETFs to investors with no commissions. The details of the financial relationship between the brokers and ETF administrators are not generally discussed, but even if the administrators are not sharing fees, the brokerages can probably look at the foregone commissions as part of their marketing budget to attract more assets and customers.
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Investor interest in emerging markets has always operated a bit like a full sauna session, with cycles of hot and cold following one after the other. Now things are heating up again. Nearly $6 billion flowed into emerging market funds in the week of October 20 alone, and two all-time weekly records were set in October, according to EPFR Global. With over $40 billion flowing in this year, it has been a banner year for investor interest in these fast-growing economies.
Along the same lines, numerous emerging market-oriented ETFs are near 52-week highs, including the China Small Cap Index (NYSE:HAO), the MSCI Emerging Markets Index (NYSE:EEM) and Vanguard Emerging Markets ETF (NYSE:VWO).
Diamonds have not yet managed to steal the stage from gold, but investor interest is heating up nonetheless. There are relatively few direct diamond plays in the U.S. markets, but Harry Winston (NYSE:HWD) (a miner and retailer) is near a 52-week high, as is Mountain Province (NYSE:MDM). Although a lot of diamond mining is dominated by giants like Anglo American, De Beers (a private company) and Rio Tinto (NYSE:RIO), intrepid investors can find ADRs, small Canadian miners and shares listed overseas with a bit of effort. Investors are bidding up high-end jewelry retailers like Tiffany (NYSE:TIF), and these are often the only diamond-buying options for many people.
With rates as low as they have been in decades, it is no great surprise to see that bond and fixed-income ETFs are near their highs as well. Names ranging from the PowerShares Emerging Markets Sovereign Debt ETF (NYSE:PCY) to the iShares Investment Grade Corporate Bond ETF (NYSE:LQD) to the Vanguard Total Bond Market ETF (NYSE:BND) are near the highs, and some people appear baffled that yields could be so low with the size of the deficits and debt being racked up the U.S. government.
What is interesting, though, is that there is relatively little evidence that the boom in bond interest is being led by retail investors. Instead, demand appears to be driven by pension funds and foreign investors - pension funds that need a fixed-income substitute for the mortgage bond market, and foreign investors who seemingly cannot find better uses for their trade surpluses.
The Bottom Line
Odds are good that if a sector is hot, bystanders have missed the easy (and safe) profits. That is not to say that there cannot be more money to be made trying to "top-tick" a secular bull market, but that is a difficult and dangerous game. If nothing else, investors should recognize that Wall Street works overtime figuring out new ways to make money off of the ideas they read about every morning in the papers. (To learn more, check out a few Easy Ways To Diversify Your Portfolio.)
For the latest financial news, see Water Cooler Finance: Rising Markets And Buffett's Successor.
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