The stock market, despite its recent volatility, has been simply breathtaking over the last year or two.
The major indices obliterated their past records. Yet, smart-money investors from Jeff Gundlach to Carl Icahn have warned that valuations are getting too extreme and we may see a correction soon.
But don’t buy into the bubble talk.
Because while markets always ebb and flow, there are plenty of high-quality investments that will keep your portfolio moving in the right direction in 2018 and beyond!
And a key part of that strategy — one that will protect your backside even as you ride a continued bull market — involves exchange-traded funds (ETFs).
Today, I want to show you a group of 13 ETFs that can handle every major duty in your portfolio:
6 High-Growth Dynamos… that can clobber the market by investing in megatrends, and also by using a few tricks that only ETFs can channel
4 Cash Machines… that can deliver retirement-sustaining dividends in the high single digits and even double digits!
3 Portfolio Pillars… that you can set-and-forget for the rest of your life.
Don’t let this inflection point in the market stop you in your tracks. Put yourself in position to continue winning in the long-term, while being agile enough to jump over any near-term market hurdles.
This report is only the beginning of what InvestorPlace has to offer, however. If you ever want to share your own research and investing experience, contact us any time at editor@investorplace.com.
High-Growth Dynamo #1 – Emerging Markets E-Commerce ETF
- Type: Industry (E-Commerce)
- Expenses: 0.86%
Yes, Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL) have raced one another to get to the $1,000 mark and beyond, as the former defines e-commerce and the latter rules search with an iron fist.
But the growth of the internet industry is far from an American phenomenon. If you look to emerging markets, you’ll find some of the most exciting internet stories on the planet.
Alibaba Group Holding Ltd (NYSE:BABA) — a $360 billion Chinese e-commerce titan that’s going the way of Amazon by expanding into media and the cloud, among other businesses — continues to wow the analyst community with big growth that’s higher than Wall Street’s already sky-high expectations. And there’s Tencent Holdings (OTCMKTS:TCEHY) — whose empire includes messaging app WeChat, online payment system TenPay and a video game division that includes the world’s top-grossing title.
The Emerging Markets Internet & Ecommerce ETF (NYSEARCA:EMQQ) invests in these and many other stocks across the world, from China and India to Latin America and Africa. That includes not just massive e-conglomerates like Alibaba and Tencent, but also focused plays such as Chinese online travel play Ctrip.com International Ltd (NASDAQ:CTRP) and Russia-based search engine provider Yandex NV (NASDAQ:YNDX).
This diversified basket of 40-plus stocks put up nearly 40% gains in the first half of 2017, not just beating the S&P 500 four times over in that period, but also leaving Amazon and Alphabet in the dust.
High-Growth Dynamo #2 – SPDR Biotech ETF
- Type: Industry (Biotech)
- Expenses: 0.35%
Biotechnology stocks tend to give many investors a sense of dread when they’re mentioned. That’s because anyone with a half-decent memory recalls what happened in 2015.
Increasing outcry over sky-high drug prices putting pressure on equally sky-high valuations in the space, capped by then-Democratic presidential hopeful Hillary Clinton vowing in September to take on “price gouging” in the specialty drug market, caused a roughly 50% bloodbath in biotech stocks from their July peaks to their early 2016 lows.
Since then, however, it has been back to business as usual — good news for the SPDR S&P Biotech ETF (NYSEARCA:XBI)
Biotech companies enjoy drivers such as the built-in growth of the baby boomer demographic pushing into retirement age, naturally high prices simply because of the rarity of some diseases (and scarcity of treatments), plus the stability of knowing that while consumers will cut back on a lot of things in hard times, they can’t skimp on the medicine cabinet.
XBI’s “X-factor” is its equal-weighting methodology. Many biotech funds are cap-weighted, which means the bigger, more established stocks make up more of the fund. XBI equally weights all of its holdings, which means smaller stocks have more effect on the ETF — and that’s exactly what you want! That means XBI benefits a lot more when a small-cap biotech scores a big clinical trial victory or a buyout bid from Big Pharma and pops 30% or 40%.
And isn’t that why you invest in biotech in the first place?
High-Growth Dynamo #3 – Robo Global Robotics ETF
- Type: Industry (Automation)
- Expenses: 0.95%
Every day you read a new story about how the robots are taking over. There’s Tesla Inc (NASDAQ:TSLA) or Alphabet making advances in autonomous driving, there’s McDonald’s Corporation (NYSE:MCD) displacing minimum-wage workers with ordering screens and there’s even financial analysis jobs being replaced by AI.
Heck, one report says robots could take nearly 40% of U.S. jobs within about 15 years.
That’s not great news for Team Human, but fantastic profits for the companies providing the emerging technology powering increasingly sophisticated and intelligent robots and automation systems. Global and spending on robotics is expected to hit $135.4 billion in 2019, up huge from $71 billion spent at 2015 — that’s a compound annual growth rate of 17%!
The Robo Global Robotics & Automation Index ETF (NASDAQ:ROBO) is a broad portfolio of 80-plus companies that are “focused on robotics, automation and enabling technologies.” It utilizes a two-tiered equal-weighting system that gives so-called “bellwether” stocks — that either derive a majority of sales from robotics or automation, or are a leader in a particular industry’s market share — twice the importance of non-core stocks in its portfolio. This gives it the ability to play entrenched and dominant names even as it looks to the next generation of robo players.
ROBO holds the likes of Roomba maker iRobot Corporation (NASDAQ:IRBT) or drone specialist AeroVironment Inc (NASDAQ:AVAV) — some of the more obvious plays when people think of robotics. But don’t underestimate the power of ABB Ltd (ADR) (NYSE:ABB) and Rockwell Automation (NYSE:ROK), which specialize in industrial automation for things such as factories and utilities.
Most of what ROBO invests in doesn’t have nearly the headline appeal of things such as driverless cars, but it doesn’t need to. This ETF’s focus on an increasingly tech-assisted world will steadily push it higher for decades.
High-Growth Dynamo #4 – Global X Infrastructure ETF
- Type: Industry (Infrastructure)
- Expenses: 0.47%
President Donald Trump recently revealed, as promised, his $1 trillion infrastructure plan, which would include improvements across the board — highways, airways, waterways, every which way.
Financial pundits spent months throwing out scores of infrastructure picks, including a number of so-called “infrastructure ETFs.” The problem? While many of them featured the word “infrastructure” in the name, they didn’t hold the kinds of companies that would really benefit from a sudden surge of government spending to rebuild America.
Global X changed that in a hurry.
The ETF provider filed a prospectus for the Global X U.S. Infrastructure Development ETF (BATS:PAVE) with the SEC just a month after the presidential election, and PAVE came to life in March 2017. This ETF is about as direct a response as you could possibly get to Trump’s high-profile promise to funnel money into the nation’s aging infrastructure.
PAVE holds a number of stocks involved in “the production of raw materials, heavy equipment, engineering, and construction.” That means holdings such as professional instrumentation and industrial technology play Fortive Corp (NYSE:FTV), electrical systems and power management company Eaton Corporation (NYSE:ETN) and even railroad stock CSX Corporation (NASDAQ:CSX).
All told, this ETF features just fewer than 90 holdings that are tailor-made for a multiyear overhaul in American infrastructure. Trump’s plan obviously must get the official green light, but if it does, PAVE will be off to the races.
High-Growth Dynamo #5 – VanEck India Small-Cap ETF
- Type: India Equity
- Expenses: 0.78%
The problem with many broad international funds is that because so many countries’ stock markets aren’t very correlated, you can have downturns in a few areas and mute bull runs in others. With very few exceptions — such as a themed ETF like EMQQ mentioned above — it just doesn’t pay to invest in international funds that cover 20 or 30 countries.
The best way to generate alpha internationally is to focus on individual countries … and if you really want to crank up the growth potential, target small-caps.
India is one of the fastest-growing large emerging nations, with the International Monetary Fund projecting a rebound in growth to 7.2% in 2018. That’s hotter than the still-robust 6.4% the IMF projected for China! And the thing that’s expected to propel India’s growth is consumption — basically, people using more goods and services.
That’s why right now, I like the VanEck Vectors India Small-Cap Index ETF (NYSEARCA:SCIF), which specifically targets India’s growing middle class — the very people that will help drive the boost in consumption over the coming years.
An expanding middle class will surely drive up the need for things such as additional infrastructure and financial services. SCIF, like many other country-specific funds, has significant weights in industrials (21%) and financials (15%) that will more than capture this growth.
But the X factor in SCIF is its heavier-than-usual focus on consumer stocks, which make up roughly a quarter of the fund, split between discretionary (17%) and staples (7%). Thus, you get access to stocks such as PVR Limited, a cinema operator that has exploded by 850% in just five years, or Ceat Ltd., a tire manufacturer with nowhere to go but up as more cars hit India’s roads.
Right now, you could throw a dart at just about any India ETF and expect to strike gold given the country’s sunny economic outlook, but SCIF’s small-cap and consumer focus will make it a clear outperformer over the next half-decade at minimum.
High-Growth Dynamo #6 – Direxion Junior Gold Miners 3x ETF
- Type: Leveraged Industry (Gold Miners)
- Expenses: 1.25%
This final High-Growth Dynamo is for aggressive, experienced traders only.
Gold is not an ideal way to build wealth. Gold can rise on economic and geopolitical tumult, but it can just as easily fall out of favor when the world calms down and stocks are delivering steady returns. There’s no “growth” in gold driven by revenues or profits, nor is there a dividend that slowly builds income over time.
Gold is a decent trade, though, thanks to its big swings. But if you’re going that route, you’re better off trading gold mining companies. These companies live and die by whether the price of gold is above or below their “all-in” production costs, and thus tend to trade in concert with gold — but with much more violent moves up and down.
If you really want to maximize the power of gold, then, there’s no better (or riskier) play than the Direxion Daily Junior Gold Miners Index Bull 3x Shares (NYSEARCA:JNUG), which is a leveraged ETF that is designed to produce triple the daily returns (minus fees) of a benchmark index of gold mining stocks.
Every portfolio needs a small “speculative” allocation, and JNUG can deliver that in a big way. Just consider the a short six-day trading period from late January through early February that saw the plain-Jane VanEck Vectors Gold Miners Equity ETF (NYSEARCA:GDX) gain about 10% … while JNUG threw off 40% in just a week!
Just remember it goes down three times as fast when the market turns, so be prepared for a wild ride if you buy in.
Cash Machine #1 – VanEck Preferred Securities ex Financials ETF
- Type: Preferred Stock
- Expenses: 0.41%
- Yield: 5.7%
Preferred stocks are one of the safest possible sources of high yield.
Preferred stocks are often referred to as stock-bond “hybrids” because they possess some attributes of stocks and some attributes of bonds. For instance, a preferred stock will trade on an exchange just like any other common stock, and it represents ownership in the company. However, like bonds, they don’t actually carry voting rights.
And also like bonds, preferred stocks will typically pay a fixed (though very high, between 5% and 7%) dividend based on a par rate that’s assigned when the shares are issued. If that sounds like bonds and their coupon payments, that’s because they’re very similar. They also tend to trade in a band around their par value, meaning there’s extremely little volatility compared to common stocks.
The VanEck Vectors Preferred Securities ex Financials ETF (NYSEARCA:PFXF) is one of a handful of high-yield ETFs that invest in this particular type of asset. PFXF takes the “safety play” angle one step further, though, by excluding the preferred shares of companies in the financial sector. (You’ll be unsurprised to learn that PFXF launched a couple years after the financial crisis.)
Instead, this ETF has about 30% of its holdings in utilities like NextEra Energy Inc (NYSE:NEE), 27% of its assets in real estate investment trusts like VEREIT Inc (NYSE:VER), 15% in telecoms like T-Mobile US Inc (NASDAQ:TMUS) and the rest spread across other industries and sectors.
You don’t need to fear a financial-stock crash to love PFXF. It offers one of the best combinations of low fees and high yield in the preferred-stock space.
Cash Machine #2 – PowerShares Premium Yield REIT ETF
- Type: Real Estate
- Expenses: 0.35%
- Yield: 8.25%
Real estate investment trusts (REITs) are one of investors’ favorite havens for income, as these property owners and operators receive corporate tax exemptions … but only if they return 90% or more of their taxable income back to shareholders in the form of dividends. So not only do you get exposure to real estate, but you also get high yields in the realm of 4% to 8%, typically.
The PowerShares KBW Premium Yield Equity REIT Portfolio (NYSEARCA:KBWY) is a collection of anywhere between 24 to 40 small- and mid-cap equity REITs in the U.S. And importantly, the fund uses a dividend yield-weighted methodology, meaning the REITs with the highest yields make up the largest portions of the fund. Right now, for instance, top holdings include healthcare-focused Global Medical REIT Inc (NYSE:GMRE) and retail property owner Washington Prime Group Inc (NYSE:WPG).
While this results in run-of-the-mill price performance compared to its peers, it also results in a yield north of 8% that makes KBWY a total-return outperformer compared to the vast majority of the field.
Cash Machine #3 – VanEck Vectors High-Yield Municipal Index (HYD)
- Type: Municipal Bond
- Expenses: 0.35%
- Yield: 3.8%
Municipal bonds have long been a favorite of retirement investors because of a massive advantage versus most other forms of investment income — they’re tax-exempt at the federal level, and in some cases, even free of state and local taxes. That not only makes municipal bonds a sweet income play overall, but they’re a particularly smart target for taxable accounts.
Contrary to occasional hysterical headlines, municipal bond defaults are incredibly rare. But the fact that state and county governments aren’t necessarily as reliable as the U.S. government, municipal bonds tend to offer higher yields than U.S. Treasuries even if they are nearly as safe — and certainly much safer than corporate bonds in general.
The VanEck Vectors High-Yield Municipal Index (NYSEARCA:HYD) offers a wide safety net by investing in nearly 1,600 municipal bonds scattered across the U.S., with its biggest weightings in California (16%), Illinois (11.9%), New York (8.7%) and Ohio (8.1%) debt. That diversification ensures that even if a couple of munibonds go sour, the fund as a whole is extremely well-insulated.
The kicker here is that thanks to tax breaks associated with this investment, depending on your income tax bracket HYD’s yield runs anywhere from 4.5% to 6.3% when you account for those benefits!
Cash Machine #4 – ETRACS 2x Long BDC ETF
- Type: Business Development Companies
- Expenses: 0.85%
- Yield: 18.9%
This fund blurs the lines between Cash Machine and High-Growth Dynamo by mixing an extremely income-friendly industry with fund leverage.
Business development companies are a particularly useful niche in the corporate world, created in 1980 to help American businesses create jobs and grow by providing lending to smaller, up-and-coming businesses. Essentially, where the big banks won’t lend, BDCs step in and offer financing, as well as consulting and even operational help.
BDCs are free from income taxes, but like REITs, they must pay out at least 90% of all taxable income to shareholders in the form of (really big) dividends. For instance, the ETRACS Linked to the Wells Fargo Business Development Company Index ETN (NYSEARCA:BDCS) fund yields a healthy 9% at the moment.
But if you really want to get aggressive and chase astronomical yields, the 2xLeveraged Long Wells Fargo Business Development Company Index ETN (NYSEARCA:BDCL) is the play to make.
The BDCL — which as an exchange-traded note doesn’t actually hold any assets, but instead is a debt product that tracks an index to provide its returns — follows the same index as the BDCS. Thus, it lives and dies on the returns of companies such as Ares Capital Corporation (NASDAQ:ARCC), FS Investment Corporation (NYSE:FSIC) and Prospect Capital Corporation (NASDAQ:PSEC).
The BDCL actually aims to produce twice the daily returns (and dividends) of the index — allowing you to double your gains, but potentially double your losses. This BDC ETF is risky, no doubt. But it’s also one of the best sources of “extreme” high yield on the market.
Core Portfolio Pillar #1 – Vanguard S&P 500 ETF
- Type: U.S. Large-Cap
- Expenses: 0.04%
The brightest minds on Wall Street face a big, nagging problem: They just can’t beat the market. Hedge funds have underperformed the S&P 500 for years on end. The vast majority of large-cap mutual funds can’t get over the hump, either.
So why bother trying? The Vanguard S&P 500 ETF (NYSEARCA:VOO) is the cheapest way to invest in the S&P 500, charging a mere 4 basis points, or $4 annually for every $10,000 invested, to get access to the ubiquitous index’s 500 large- and mid-cap companies. That means the bluest of blue chips in every sector, such as Apple Inc. (NASDAQ:AAPL), Exxon Mobil Corporation (NYSE:XOM) and Berkshire Hathaway Inc. (NYSE:BRK.B).
Every single portfolio should have some exposure to the S&P 500, as it’s going to beat most stock pickers over time. VOO is the best way to do that.
Core Portfolio Pillar #2 – iShares Investment Grade Corporates ETF
- Type: Investment-Grade Bond
- Expenses: 0.15%
Equities help you grow your money, but bonds will help you protect it. Government and corporate debt provides investors with a source of stable, fixed income that might not be as lucrative as stocks, but typically safer.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD) is the perfect middle ground in the bond world, offering exposure to investment-grade debt that offers more yield than U.S. Treasuries, but less risk than high-yield corporate junk bonds.
Investment-grade corporate debt issued by the likes of Verizon Communications Inc. (NYSE:VZ) and JPMorgan Chase & Co. (NYSE:JPM) isn’t as iron-clad as debt issued by the federal government, and thus corporate bonds tend to yield more than U.S. Treasuries. However, it’s still investment-grade debt. Credit ratings agencies like Standard & Poor’s and Moody’s believe these bonds are very likely to be repaid, so you’re not speculating as with junk bonds where companies have a very real risk of going under and leaving bondholders out in the cold.
LQD yields a little more than 3%, making it a perfect balance of security and decent income.
Core Portfolio Pillar #3 – iShares International Select Dividend
- Type: International Dividend Equity
- Expenses: 0.50%
The iShares International Select Dividend (NYSEARCA:IDV) addresses one of the biggest issues with many portfolios: While you should diversify among asset classes, you also shouldn’t forget to diversify geographically.
Yes, the United States tends to be one of the planet’s best-performing stock markets over the long run, but American stocks do slump — and when they do, it’s good to have some exposure to other parts of the world that are holding up better.
There’s just one problem: Europe, Asia, Latin America … the world’s markets aren’t very correlated, and so international ETFs often suffer from flat returns as several outperforming countries are negated by a few lousy countries.
That’s why any long-term international investment should have dividends in mind. Whether markets are going higher or lower, you can count on a steady stream of cash from across the world … and that ultimately will put you ahead.
iShares’ IDV invests in a basket of 100 high-paying international dividend stocks, such as British pharma firm AstraZeneca plc (ADR) (NYSE:AZN) and Australian financial services company Macquarie Group Ltd. The fund is about a quarter invested in the U.K., 15% to Australia and the rest strewn across more than a dozen other countries, mostly in Europe and Asia.
While the long-term price appreciation from IDV isn’t much to gloat about, those big, fat dividends have helped iShares’ ETF outperform most of its “regular” international counterparts.
