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4 Ways to Invest in the Stimulus |
Currently, the House of Representatives have a $825 billion dollar stimulus spending bill ready for debate and ultimately the new White House's approval. While some of the specifics will likely be modified a spending bill like this is very likely to be passed and implemented in 2009. The current proposed bill includes a number of measures from investments in infrastructure projects to tax credits for struggling industries. While the bill is relatively broad-based there are a few areas of specific focus that may present the opportunity for growth or at least stronger performance than the recent past. 
For the examples in this article I will be referring to ETFs as a way to leverage these opportunities. ETFs, like mutual funds are a great way to invest within a market sector without having to choose individual stocks. When investing in ETFs it is important to look for those with low expense ratios (less than .5%) and small bid ask spreads since these costs can reduce your potential profitability. If you need some help understanding ETFs, click here for some additional info.
- Infrastructure spending could drive demand for basic materials. Demand for chemicals, metals, lumber, cement and other basic building and manufacturing materials could increase if the government succeeds in deploying new infrastructure products. There are several ETFs to choose from in this sector but the low cost leader-Vanguard Basic Materials ETF (VAW) is a good example of the opportunity. Basic materials indexes have been consolidating since the lows of November 2008 and on-balance-volume is confirming buying interest.
- Home builders may get a large tax credit. The proposal includes a provision for builders to apply losses over the last 2 year against gains over the last 5 years. This is a sort of contra-tax that could improve the capital position for these builders allowing them to keep jobs and survive the downturn. The iShares Home Construction Index Fund (ITB) is an example of an ETF with holdings across this sector. This particular fund is off 80% from its introductory values (near the industry's apex) in early 2006.
- For those investors with interest in "green" energy the bill includes billions for renewable energy development and loans. This sector may be more speculative than home builders but investor interest alone could be enough to build some growth momentum. Like most green ETFs, the PowerShares WinderHill Clean Energy Portfolio ETF (PBW) has high costs but could see some value appreciation with increased demand for energy and capital injections from the government.
- In addition to physical infrastructure the bill focuses on IT infrastructure. The bill has allocations for IT build outs that could improve health services and broadband access among other things. The makers of this type of equipment have suffered in the decline like the rest of the economy. The iShares North American Networking Index Fund (IGN) is one way to invest across a spectrum of firms (including Cisco, Corning and Juniper) in this sector.
Although some specific ideas were used in this article this is not an exclusive list. The principle is to use the information available about the stimulus bill to start watching for investing opportunities. If the government spending plan is successful and/or economic growth reappears on its own, these industries could have a head start on the recovery due to their access to capital compared to the rest of the market. Do your own research and see if there is an opportunity here to use the House's bill to "stimulate" your portfolio.
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