U.S. economic growth remains painfully slow as companies and individuals continue to deleverage in a so-called balance sheet recession after the 2008 credit crunch.
Exchange traded fund investors should look for alternative investment options to help make the economic effects of the deleveraging process more tolerable, some analysts say.
According to the international economist Richard Koo, the U.S. is undergoing a balance sheet recession where the country’s debt-fueled asset bubble pops and weighs down the nation with devalued assets and high debt, reports Samuel Lee, ETF analyst for Morningstar. Consequently, paying down debt is taking priority over profit-maximizing strategies. [VIX, Volatility ETFs Come Back to Life]
The deleveraging process may take years until growth returns after private balance sheets are strengthened. Consumers have picked up spending recently but it has been fueled by a lower savings rate. [Behind the Retail Sales]
Lee suggests taking a look at the PowerShares S&P 500 Low Volatility (NYSEArca: SPLV) for this type of environment. The fund will help cushion any potential falls in the broader market. [Low Volatility ETF]
Additionally, Lee points out that deleveraging may also be accompanied by inflation, currency devaluation or financial uncertainty, which is just the type of environment gold thrives in. The iShares Gold Trust (NYSEArca: IAU) is a gold-backed ETF.