Following the summer crash in stock exchange traded funds and fall melt-up, I’ve been writing about the idea that we could be entering a “winter resolution,” which is an environment characterized by lower correlations/volatility and a trend (up).
Every day continues to confirm this as markets climb an icy wall of worry despite continued skepticism by the investing community. [Winter Resolution of 2012]
If indeed the bull is back and 2012 becomes the year of reflation, I don’t think the way to approach markets is to go with prior market leaders.
On the contrary, this is the exact kind of environment where new leaders emerge.
What could be one of those leaders? Take a look below at the price ratio of the Global X Uranium ETF ( URA ) relative to the iShares S&P 500 ( IVV ) . As a reminder, a rising price ratio means the numerator/URA is outperforming (up more/down less) the denominator/IVV.
Certainly all things tied to uranium severely underperformed last year given the Japan power plant disaster following the tsunami. The ratio trended lower all year and never really captured anyone’s attention given concerns over a slowdown in the industry and public fear over the dangers of nuclear fallout. However, nuclear energy is not going away any time soon, and the downside move may have been an overreaction in the stocks.
There is some stock specific risk certainly with the ETF given that Cameco (CCJ) makes up about 22% of the ETF, but that’s also because its the biggest stock play on the group. Interestingly over 55% of the holdings are Canada-based, with only 14% being U.S.-oriented. What this means if that should 2012 be a good year for equity markets outside the U.S., the overall exposure of URA to outside markets could help push prices higher than one might otherwise think.
The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.
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