Ways To Play Bank Of America's Top Trades in 2011

By Aaron Levitt | December 22, 2010 AAA

With 2010 drawing to a close, analysts and investors are already looking towards 2011. Preliminary reports from various market strategists are beginning to surface and many point towards another bullish year for stocks. While market conditions can change in an instant, retail investors can get an idea of how to position themselves in the New Year from reading what Wall Street pros have to say. Bank of America's (NYSE:BAC) Merrill Lynch Global Research arm recently unveiled their predictions for the upcoming year.


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Bullish On Global Growth
Overall, analysts for Merrill believe that 2011 will be a year of modest global GDP growth. Total global economic growth is estimated to be around 4% during the year, with emerging markets accounting for over three quarters of that growth. Excess liquidity will help drive up global equity prices in the U.S. and emerging markets. As Europe continues to struggle with persistent sovereign debt issues, analysts see a stronger U.S. dollar, higher gold and strong gains in Europe's major exporters like Germany. Merrill Lynch is also bullish on increased gains in commodities throughout the year.

The investment house also believes that we will experience another year of zero interest rates, with the Fed holding until March 2013 before making any serious moves to its rate policies. High yield stocks and asset classes like REITs and MLPs will continue to be in demand.

Strong Bets for the Forecast
Using this frame work as a guide for investment in the New Year, investors have several choices in order to play these broad themes. Many exchange-traded funds exist that offer direct correlation to the banks' hypothesis for 2011. Here are some examples.

Merrill sees favorable returns for the BRIC nations and emerging markets in general, with an average 6.4% GDP growth across sector. Internal demand will replace exports as the main driver of that growth. In addition, some experts see Latin American emerging markets outperforming Asia ones as they are more leveraged to the commodity sector. For investors wanting to add a broad swath of Latin American equities can do so with the SPDR S&P Emerging Latin America ETF (NYSE:GML). The fund follows 107 different companies across Brazil, Chile, Mexico and Peru including iron ore giant Vale S.A. (Nasdaq:VALE) and Mexican retail Wal-Mart de Mexico SAB De CV (OTCBB:WMMVY). The fund charges 0.60% in expenses. For a broad small cap play on the region, the Market Vectors LatAm Small-Cap Index ETF (Nasdaq:LATM) can be used.

Precious Metals
Precious metals will continue to benefit from inflation and sovereign debt fears, and gold could reach $1,500 per ounce before heading to over $2000. Merrill also expects silver to test its
1980 all-time high of $50. The ETFS Physical PM Basket Shares (Nasdaq:GLTR) allows investors to hold gold and silver, as well as platinum and palladium, in one ticker. For pure mining plays, the Market Vectors Gold Miners ETF (NYSE:GDX) and Global X Silver Miners ETF (NYSE:SIL) are the easiest way to gain exposure.

The cyclical bull market in equities that began in 2009 is not over yet, and strategists believe that the S&P 500 could tack on an additional 9% in gains in 2011. The analysts favor growth stocks over value after the recent few years' flight to quality. The iShares S&P 500 Growth Index (NYSE:IVW) is a low cost way to add coverage of that "style" to your portfolio. The fund only charges 0.18% in expenses.

Bottom Line
With 2010 coming to a close, many analysts are already making their predictions for the New Year. Strategists at Merrill Lynch predict another year of bullishness for a variety of asset classes. The previous exchanged-traded funds are just a few of the ways to play their themes for the next year. (The rewards associated with this fixed-income asset are significant, but so are the risks. See An Introduction To Emerging Market Bonds.)

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