What Are ETFs? ETFs have several advantages over typical mutual funds:

Transcription

1

2 What Are ETFs? Exchange traded funds (ETFs) offer the best of two worlds: equity and mutual fund investing. ETFs can do this because they trade on exchanges like equities, but are structured to mirror market indexes, thereby relieving you of active portfolio management, at least in regard to a particular investment. ETFs are a variant of index funds in that they are usually passive vehicles that represent a basket of stocks that mirror an index. The difference is that unlike an index fund, an ETF trades on a stock exchange in real time. ETFs have several advantages over typical mutual funds: Advantage 1: Many mutual funds have investment minimums and early redemption fees; with ETFs, there's no such thing. Advantage 2: Real-time tracking. Mutual funds only give one price at the end of the day. ETFs price all day long. Advantage 3: Real-time trading. Mutual funds can only be bought and sold at the end of the day. ETFs can be bought and sold whenever the markets are open. Advantage 4: Cost. Mutual funds aren't cheap - the management behind them comes at a price. For the most part, ETFs are cheaper than the average mutual fund. Advantage 5: Transparency. Mutual funds are only required to disclose their holdings once per quarter. In an ETF, you always know what you own on any given day. ETFs allow you to invest in an index, an industry, or even a whole sector, without having to pick specific stocks. So, with an ETF, if you believe a particular sector will perform well, you can invest in it without the fear of picking the one stock in the group that underperforms. Of course, understanding sector rotation could be beneficial in that scenario. This theoretical model is based on Sam Stovall's S&P's Guide to Sector Rotation and states that different sectors are stronger at different points in the economic cycle. The graph above shows these relationships and the

3 order in which the various sectors should get a boost from the economy. The Market Cycle precedes the Economic Cycle because investors try to anticipate economic effects. Stage: Full Recession Early Recovery Consumer Expectations: Reviving Rising Industrial Production: Bottoming Out Rising Interest Rates: Falling Bottoming Out Yield Curve: Normal Normal (Steep) Stage: Full Recovery Early Recession Consumer Expectations: Declining Falling Sharply Industrial Production: Flat Falling Interest Rates: Rising Rapidly (Fed) Peaking

4 Yield Curve: Flattening Out Flat/Inverted When the contentious US election finally ended last year, attention turned to the likely policy implications of the altered political landscape of Donald Trump. In some ways, the Republican victory in November will translate into a 180-degree turn from the status quo under the Obama administration. But, as with any major shift, there will be industry winners and losers. We have already seen a sharp sector rotation. One of the key questions for investors over coming months will be whether this Trump sector trade, which had performed so well coming into 2017, has already played out. What had we seen since the election? On the downside, bond proxies stocks that offer some of the same qualities as fixed income have suffered from a rise in the yield on risk-free Treasuries. In contrast, industries that stood to benefit from lower regulation had been the main winners. Financial services topped the charts with a gain of over 10% at one point. While the aggressive sector rotation may have run its course, we still believe the bull market has a long way to go. For our list of ETFs for this report, we simply analyzed the entire ETF market to select the ones that are currently outperforming the rest. We then cross-referenced those ETFs with a list of the funds where institutional money is flowing into them, whereas before the election maybe money was flowing out. When referring to institutional, or smart money, investors and traders are referring to the money of institutional investors. So, who are the institutional investors? Financial institutions, such as investment funds and insurance companies, are the large players in the stock market. They also include investment banks, retirement or pension funds, hedge funds, investment advisors and mutual funds. These are considered to be the informed investors. When it was all said and done, we ended up with the following (10) ETFs that you might want to add to your portfolio.

5 SPDR S&P 500 ETF (SPY) The SPDR S&P 500 ETF seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 index. The trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index, with the weight of each stock in the portfolio substantially corresponding to the weight of such stock in the index. Adding this to our report was a no-brainer being that we believe the overall market has more room to run to the upside. That being the case, owning the benchmark index could be the way to go. Often our readers or program members feel they have a good gauge on the market direction, but are not great stock pickers. Buying the SPY would obviously be a great choice in that situation.

6 ISHARES MSCI EMU ETF (EZU) The investment seeks to track the investment results of the MSCI EMU Index composed of large- and mid-capitalization equities from developed market countries that use the euro as their official currency. The fund generally invests at least 95% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index. The index consists of stocks from the following 10 developed market countries: Austria; Belgium; Finland; France; Germany; Ireland; Italy; the Netherlands; Portugal; and Spain. This one is usually a surprise given all of the rhetoric involving the Eurozone and its inevitable demise. However, this ETF is up over 26 percent this year, and institutional ownership has increased by over 42 percent since last quarter.

7 ISHARES MSCI GERMANY ETF (EWG) The investment seeks to track the investment results of the MSCI Germany Index. The fund will at all times invest at least 80% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index. The underlying index may include large-, mid- or small-capitalization companies. Components of the underlying index primarily include consumer discretionary, financials and healthcare companies. Apparently, the big institutions apparently love the Germans, because institutional ownership in the ETF has jumped 22 percent since last quarter. All in all, this ETF could continue to provide nice returns moving forward with the smart money behind it, as it is already up almost 23 percent this year.

8 GLOBAL X ROBOTICS & ARTIFICIAL INTELLIGENCE (BOTZ) The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Robotics & Artificial Intelligence Thematic Index. The fund invests at least 80% of its total assets in the securities of the underlying index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that are involved in the development of robotics and/or artificial intelligence as defined by Indxx, the provider of the underlying index. Robots and I.A. have been on a nice run this year, with tech companies moving the industry further and further. Unless something major changes, there s no reason not to expect a continuation of the run. The 132 percent increase in ownership seems to have been reflected in the fund. In the past 9 months, the BOTZ is up almost 42 percent, performing well with the overall market.

9 ISHARES MSCI SPAIN CAPPED ETF (EWP) The investment seeks to track the investment results of the MSCI Spain 25/50 Index. The fund will at all times invest at least 80% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index. The underlying index is a free floatadjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer of a component exceeds 25% of the underlying index weight, and all issuers with weight above 5% do not cumulatively exceed 50% of the underlying index weight. This ETF has rallied nicely since the beginning of The ETF is up around 29 percent since that time. In addition, the smart money has added back-to-back increases in institutional ownership. So, for now, Spanish stocks definitely seem like a good place to be.

10 ISHARES MSCI EMERGING MARKETS ASIA ETF (EEMA) The investment seeks to track the investment results of the MSCI Emerging Markets (EM) Asia Index. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and in investments that have economic characteristics that are substantially identical to the component securities of the underlying index. The underlying index may include large-, mid- or small-capitalization companies. Components of the underlying index primarily include consumer discretionary, financials and information technology companies. The tensions with China and the surrounding area may make this ETF a surprise, but its out performance is clear. The EEMA is already up over 35 percent this year, and the big money is gobbling up the ETF as well, with back to back increases in institutional ownership.

11 ETFS PHYSICAL PALLADIUM SHARES (PALL) The investment seeks to reflect the performance of the price of physical palladium, less the expenses of the Trust s operations. The fund is designed for investors who want a cost-effective and convenient way to invest in palladium with minimal credit risk. Most of the conversation pertaining to metals is reserved for gold, silver, and sometimes copper. Most investors might not consider palladium as a part of their portfolio. Basically, the PALL has been rallying for a year now, and the big money is behind it as well, to the tune of two consecutive quarterly increases in ownership. The ETF is already up almost 35 percent so far in 2017.

12 AMPLIFY ONLINE RETAIL ETF (IBUY) The investment seeks investment results that generally correspond (before fees and expenses) to the price and yield of the EQM Online Retail Index. The fund will invest at least 80% of its total assets in global equity securities that comprise the index, which will primarily include common stocks and/or depositary receipts, such as ADRs and GDRs. The index seeks to measure the performance of global equity securities of publicly traded companies with significant revenue from the online retail business. The index methodology is designed to result in a portfolio that has the potential for capital appreciation. Big surprise, right? Anyone ever heard of a little company called Amazon? IBUY has been rallying since the beginning of the year, and on top of that, the institutional ownership of this ETF has jumped by over 1000 percent since the last quarter.

13 GLOBAL X LITHIUM ETF (LIT) The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Lithium Index. The fund invests at least 80% of its total assets in the securities of the underlying index and in American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on the securities in the underlying index. The underlying index is designed to measure broad-based equity market performance of global companies involved in the lithium industry. Not only is this ETF up nicely for the year, but also institutional ownership has increased for two consecutive quarters, 83 percent in this quarter alone. So, if you like lithium and lithium batteries, this ETF is certainly your play even if it s up 55 percent already this year.

14 ISHARES MSCI TURKEY ETF (TUR) The investment seeks to track the investment results of the MSCI Turkey Investable Market Index (IMI). The underlying index may include large-, mid- or small- capitalization companies. Components of the underlying index primarily include consumer staples, financials and industrials companies. With the smart money increasing by over 33 percent last quarter, and the ETF rallying by more than 43 percent in 2017, the Turkish economy would appear to be in vogue these days. Sources: Yahoo Finance, Fidelity