Hold on to that safety bar, because the market is off to a wild start in 2018. Not only that, more than a trillion dollars left actively managed exchange-traded funds last year and most of it found its way into passively managed ETFs. Thus, ETFs continue to be very popular, even though many of them are essentially duplicates of one another.
My headline is somewhat dangerous, because returns should never be assessed in a vacuum. It’s easy to put together a list of ETFs and see which were the best performers in a given time period, but all you’ll find is that leveraged ETFs will be at the top of the list.
This is how most investors think and that is just fine, if you don’t care about risk. And I will be tackling seven ETFs that I believe will beat the market in 2018, but without considering risk.
If you want investments that I believe will beat the market over the very long-term, in which risk is calculated into the equation, pay me a visit at my stock advisory newsletter, The Liberty Portfolio.
Here’s my non-risk-adjusted thoughts on non-leveraged ETFs that I think will be the S&P 500 benchmarks for 2018.
ETFs to Buy: iPath S&P GSCI Crude Oil Index ETN (OIL)
Expense Ratio: 0.75%, or $75 per $10,000 invested
iPath S&P GSCI Crude Oil Index ETN (NYSEARCA:OIL) is an ETN that “reflects the returns available through an unleveraged investment in West Texas Intermediate Crude Oil futures contracts plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts.”
I’m going with OIL because crude oil prices have broken out, and OPEC seems to be playing nice with its members. Together, that should send crude oil prices significantly higher through the year. OIL is already up 3.21% this year. I think there could be as much as 40% upside with OIL in 2018 and it could be one of the top ETFs to beat the market in 2018.
ETFs to Buy: PowerShares DWA Emerging Markets Momentum Portfolio (PIE)
Expense Ratio: 0.75%
PowerShares DWA Emerging Markets Momentum Portfolio (NYSEARCA:PIE) was up 42% in 2017, but this came after four years of pretty weak returns. The emerging markets sector is lagging when compared to the domestic market explosion.
Money is flowing into emerging markets as well, as institutions and investors are looking for sectors that are not only lagging, but are also not as heavily correlated to the U.S. market as many investments are. While the correlation is not as disconnected as it used to be, emerging markets are increasingly becoming correlated, and non-correlated investments like this should be one of the ETFs to beat the market in 2018.
ETFs to Buy: WisdomTree US SmallCap Earnings ETF (EES)
Expense Ratio: 0.38%
WisdomTree US SmallCap Earnings ETF (NYSE:EES) is one of but a few small-cap value ETFs that I like. Small-cap value stocks have also lagged the big rally in U.S. stocks, although they came on strong last year.
I think there’s more upside here. The reason for lagging is because investors like the big momentum names that are cool and sexy. EES has many companies you know and some you don’t, but all are growing at healthy clips and have stocks slowly being discovered.
ETFs to Buy: iShares MSCI Austria Capped ETF (EWO)
Expense Ratio: 0.49%
iShares MSCI Austria Capped ETF (NYSEARCA:EWO) is probably my riskiest selection. For starters, you just never know what could happen in any given country that upends its economy or markets.
However, Austria has a lot going for it. A Conservative government will be better for the economy and avoid the socialist angle much of Europe has endorsed. The Eurozone has its highest economic confidence in ten years, and factory growth is at a record high.
I also think EWO will be one of the ETFs to beat the market in 2018 because, during my visit there last year, the economy and tourism seemed to be absolutely booming.
ETFs to Buy: iShares Global Materials ETF (MXI)
Expense Ratio: 0.48%
iShares Global Materials ETF (NYSEARCA:MXI) is likely to outperform the S&P 500 in 2018, as manufacturing picks up around the world. The manufacturing index here in the U.S. is climbing, as it is in Europe. Housing starts, building permits and construction spending is increasing here as well.
Of course, manufacturing means materials are needed, and that means lots of buying of materials. If we add the possibility of a Trump infrastructure spending bill, so much the better, leading MXI to be one of the ETFs to beat the market in 2018.
ETFs to Buy: PowerShares Buyback Achievers Portfolio ETF (PKW)
Expense Ratio: 0.63%
PowerShares Buyback Achievers Portfolio ETF (NYSEARCA:PKW) should also outperform the S&P 500, and that’s because of the ongoing trend of buying back stock at unreasonably high prices using debt, and the corporate tax cut.
While many companies will pass on the tax cut savings to shareholders in the form of dividends, or reinvest the money, others will pile on the buybacks. That will push those stocks higher over the course of the year.
ETFs to Buy: Consumer Discretionary Select Sector SPDR ETF (XLY)
Expense Ratio: 0.14%
Consumer Discretionary Select Sector SPDR ETF (NYSE:XLY) will do well in 2018, because consumer confidence is not only at multi-month highs, but because household debt continues to increase.
The American consumer keeps drawing down debt, and uses it to buy stuff — stuff that they don’t necessary need, that aren’t staples. Thus, discretionary purchases are where we will continue to see money flow, and that should push up the stocks that fill out his sector.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He owns shares of EWO and OILU, the 3x leveraged version of OIL. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at [email protected].