The year 2017 will go down in history as a remarkable one, particularly for the financial markets. Although Wall Street braced for an unmitigated disaster in the form of President Donald Trump’s administration, the end result was surprising. The broader economy improved, sending most sector exchange-traded funds flying. Now, investment advisory firms are churning out lists of ETFs to buy as rapidly as they can write them.
Because the surge in the capital markets was so intense, it was easy to conflate profitability with a superior strategy. Long-feared bearish cycles never truly appeared and getting a loser in your portfolio was a fairly difficult task. As long as you stayed away from speculative investments or chronically losing sectors like gold, you were golden.
I, however, don’t think this tailwind will last. For one, the newness factor of Trump — what he will do, how he will respond — is gone. The novelty and comic relief of having a reality TV star as president faded. We’re now back to the issues, and 2018 could be a make-it-or-break-it moment for Trump.
Johnny has enjoyed his “Everybody is a Winner” trophy. Now, it’s time to separate the winners from the losers. Here are my top ideas for ETFs to buy for the coming new year!
Technology was smoking hot this year, as it was the last. As proof, over the trailing one-year period, the Technology Select Sector SPDR Fund (NYSEARCA:XLK) gained nearly 36%. This amazing performance beat out every other S&P 500 sector fund, according to data compiled by Stockcharts.com.
Naturally, the XLK belongs on anyone’s ETFs to buy list, including any fellow contrarians. Like most folks, I don’t like to chase my investments up. That doesn’t mean you should wait for a pullback either. Considering the enormous potential of the technology sector, a pullback may be a long time coming.
Today, a tech investment isn’t just about computers, devices and core components. It’s taking the next step forward, from a merely useful tool to one that has an intelligence of its own.
Among the XLK’s top holdings include Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Nvidia Corporation (NASDAQ:NVDA). Both companies pioneered evolutions in data analytics and predictive technologies, and both will be mainstays in the industries of tomorrow.
Yes, the XLK has enjoyed stellar returns recently. Don’t read too much into this. Sometimes, a good performance is just a good performance!
While we’re on the subject of technology, I want to bring to your attention another same-sector fund: ARK ETF Trust (NYSEARCA:ARKW). The ARKW is an actively-managed fund that focuses on companies working in next-generation sectors, like cloud computing and Big Data. It has a nice mixture of recognizable names, as well as lesser-known speculative companies.
But the only name that you need to worry about is Bitcoin Investment Trust (OTCMKTS:GBTC). As the top holding in the ARKW, this fund is banking heavily on bitcoin and cryptocurrencies. While that may seem like an unnecessarily heavy risk, I believe the ARKW will pay off handsomely.
As I have written about extensively, bitcoin and the blockchain are the ultimate disruptors. Everything that we know about business and finance will change over the next several years. As such, the bitcoin rally — which is currently approaching $12,000 — is only just beginning.
Of course, I understand people’s hesitation toward a completely alien investment class. If you don’t want to invest directly into cryptocurrencies, take a shot at ARKW.
If you watch something called “the news,” you’ll immediately understand why I include the iShares Dow Jones US Aerospace & Def.ETF (NYSEARCA:ITA) in my best ETFs to buy list.
The North Korean missile crisis is very real, and no longer an “Asian problem.” For decades, both liberal and conservative administrations did nothing as North Korea perfected its intercontinental ballistic missile technology. Now, according to physicists, the rogue nation has the capability to hit Los Angeles in under 40 minutes.
We’re dealing with a complete madman who is attempting to blackmail the U.S. into submission. Furthermore, the asymmetric nature of this conflict favors North Korea — we simply have much more to lose.
To send a strong message to North Korea, as well as to its allies, China and Russia, we need to demonstrate that a “rain of hate” will fall upon any country that attempts to incinerate Americans. This intense situation practically guarantees that ITA and the defense industry will have many profitable years to come.
In my opinion, one of the most underappreciated international ETFs to buy is the iShares MSCI Japan ETF (NYSEARCA:EWJ). I don’t blame anyone for overlooking the EWJ because quite frankly, Japan suffers from a credibility problem. For several years, administration after failed administration attempted to address Japan’s woeful economy, dubbed the “Lost Decade.”
Should any more failed attempts occur, Japan would have been on track to suffer a “Lost Century.” Thankfully, a man named Shinzo Abe appears to have discovered the magic formula. While Abe is controversial (he was recently embroiled in a cronyism scandal), his powerful leadership secured him more time. This added stability is crucial for the EWJ, as well as for the entire nation.
Judging by the performance of core companies like Sony Corp (ADR) (NYSE:SNE), “Abenomics” appears to be working. Moreover, President Trump essentially mocked Prime Minister Abe — you have to read between the lines — due to Japan’s apparent “unwillingness” to pay for its defense.
An alarming lack of historical context aside, Trump might push Japan to re-arm. That may trigger Japan to bolster its armament industry, which should have a long-term, positive impact on the EWJ.
While many of us are eagerly awaiting the new year, we also recognize that the world is going insane. Both domestic and abroad, we’ve been inundated with tragedies, senseless violence, political unrest, and even the threat of nuclear war. In times like these, nothing shines brighter than gold. But if you don’t want to lug around physical bullion, the SPDR Gold Trust (ETF) (NYSEARCA:GLD) is a nice alternative.
To be blunt, every year to a “gold bug” is the year. Back when commodities were the hot-ticket items, precious metal experts predicted that gold prices would hit $10,000. Silver, in turn, would hit $500. People are still making these predictions, along with incredibly dubious world-events forecasts. Strangely enough, it was bitcoin and Ethereum, not gold and silver, that hit $10,000 and nearly hit $500, respectively.
With all that said, 2018 really could be the year for gold and the GLD. Geopolitical tensions have never been this bad. We’re engaged in both hot wars and cold wars. Our nation is extremely divided, with unreal developments like the rise of white nationalism becoming all too real.
The GLD doesn’t solve any of these problems. What it typically does is jump on the fear trade, and there’s plenty of that going around.
Near the beginning of October, I noticed a remarkable event: platinum’s spot price dipped into the low-$900 range. That by itself wasn’t remarkable, as the precious metals have been disappointing for years. Rather, gold bullion was priced somewhere around $1,270. At that moment, gold was priced nearly 40% higher than platinum.
I try not to argue with the markets. Nevertheless, not only did that make no sense, that couldn’t make sense! A commonly-cited statistic is that all the gold ever mined could fit into an Olympic-size swimming pool. Gold is rare. But all the platinum mined in human history could fit into an average-sized living room. Platinum is exponentially rarer, which is why I like the Sprott Physical Platinum and Palladium Trust (NYSEARCA:SPPP).
Although physical bullion is much more fun to acquire, the SPPP has a significant advantage. Physical platinum features wide bid-ask spreads, making profitability more challenging. Furthermore, the platinum market isn’t nearly as liquid as gold. With the SPPP, you can enjoy trading in relatively robust markets without having to deal with storage and security.
Finally, the SPPP gives you coverage on palladium. With the exception of 2015, palladium has been a consistent winner among the deflated precious metals. I expect that trend to continue, given palladium’s rarity and the fact that Russia controls most of the supply.
One of my favorite international ETFs to buy is the iShares MSCI Chile Inv. Mt. Idx. Fd(ETF) (NYSEARCA:ECH). While I have no issues investing in standard or popular funds, I receive greater satisfaction finding lesser known, obscure names. Of course, none of these emotional sentiments matter if you’re not profitable. Fortunately, ECH has proven to be a powerhouse.
I first featured ECH back in August of 2016. Since then, the Chile-centric fund has gained more than 20% in the markets. Up until recently, the ECH had gained 37% since the date of publication. However, the fund took a sharp dive as a massive correction in Chilean markets sunk all boats. Nevertheless, the ECH is up 20% for the year.
Moving forward, I view the current dip as a buying opportunity. For all the talk of next-gen technologies, none of them would pass muster without commodities. Among the most important commodities for the tech sector is lithium. Chile is one of three countries sitting in the “lithium triangle,” which also includes Bolivia and Argentina.
Although Chile is not considered a tech hub, it might as well be. Advanced nations like Japan and Australia are making heavy inroads into the lithium triangle, and that trend will only rise. Despite some volatility, over the long run, the ECH is one of the best ETFs to buy for 2018.
Since the energy market collapse that began in 2014, oil companies have represented a poor place to park your money. Multiply that sentiment five-fold for oil and gas exploration units. As one of the more speculative branches of an already speculative industry, exploration companies were destined to get the full brunt of the fallout.
However, 2018 might be the year that fortunes change. That’s why I’m keeping a close eye on the SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP). One of the advantages of buying into a deflated sector is that remaining names are typically the strongest. In the oil industry’s case, surviving companies were forced to integrate fiscal discipline. While painful at the time, these sacrifices set the stage for the XOP to potentially recover.
Fundamentally, the winds favor XOP bulls. Domestic oil production is tempered, while OPEC continues to push for production cuts. Crude oil prices may rise from their multi-year lows, which would help make explorers profitable.
Combined with the aforementioned fiscal discipline, opportunities like the XOP suddenly look much more attractive to investors.
Healthcare is a politically-charged topic so I’ll try to be careful here. Universal healthcare is akin to the old adage, “there’s no such thing as a free lunch.” Somebody always pays. Under Obamacare, premiums soared. Under Trumpcare, who knows? Currently, Washington resembles a loony bin more so than the heart of American power. Nothing seems to be getting done.
However, one thing I do know about President Trump is his pro-business stance. He wants to run America like a well-oiled machine. Primarily, this means investing in productive assets and cutting out the fat. To further the analogy, government bureaucracies like the FDA are downright obese. According to a CNN report, Trump was deeply troubled about how slow potentially life-saving drugs enter the market.
His compassion spells bigly profits for the Fidelity MSCI Health Care Index ETF (NYSEARCA:FHLC). A more efficient medical regulatory process should translate to higher revenues for pharmaceuticals. Additionally, medical equipment companies can take their products to market faster than before. Irrespective of whatever happens to the insurance front, the FHLC wins.
Another bullish factor is the fund’s diverse portfolio. The FHLC is evenly balanced among pharmaceuticals, biotechnology, and medical equipment makers. Moreover, the FHLC holds 345 stocks, providing greater coverage than rival ETFs.
With all the chaos that’s occurring in our country and in our political system, it’s nice to find stability. For many investors, that might come in the form of the iShares MSCI Canada Index (ETF) (NYSEARCA:EWC). While all nations have problems, Canada doesn’t have anywhere near our level of divisiveness and crudity.
But politics aside, resource-rich Canada, and by logical extension the EWC, should find plenty of opportunities under the Trump administration. For starters, the President can use all the allies he can get. More importantly, the White House’s stance on the environment, or lack thereof, opens the door to robust energy deals. I think we can all agree that getting our oil from Canada is a more palatable proposition than other sources.
Lastly, our benchmark SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has been on an incredible run. However, all good things must come to an end.
Although I’m not trying to call tops, I will say that the longer our bull market lasts, the greater the probability of a correction. Investing a portion of your capital in the EWC fund helps mitigate some of that risk.
As of this writing, Josh Enomoto owned positions in SNE, gold, silver, platinum, palladium, bitcoin, and ethereum.