3 ETFs To Own In And 9 ETFs You Shouldn t

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2 3 ETFs To Own In 2016 And 9 ETFs You Shouldn t ETFs have assumed the role of preferred investment vehicle among advisers, 81% of financial advisers surveyed are currently using or recommending ETFs with their clients. - Journal of Financial Planning and the FPA Research and Practice Institute 2015 I ve been writing about the benefits Exchange Traded Funds (ETFs) since During that time I ve witnessed a dramatic transformation in the way independent investors manage their money. ETFs have played a critical role in this transformation. Simply put, ETFs opened the door to many asset classes and investment strategies that were once the exclusive playground of big money managers and the super-rich. Today, there are around 1,850 different ETFs with exposure to everything for stocks, bonds, commodities, currencies, and everything in-between. The biggest developments over the last few years have to do with ETFs that track asset classes like gold and other commodities as well as foreign stocks, bonds, and currencies. These ETFs make these asset classes easily accessible to independent investors. And there have been several ETFs launched that use investment strategies like sector rotation, currency-hedged, long-short, quant, and guru

3 following. These strategies were beyond the reach of most investors before ETFs made it as simple as buying and selling a stock. Why ETFs? There are lots of reasons to like ETFs. But it boils down to one thing ETFs are tools for investors to make money. And these low-cost tools can put more money in your pocket. Put simply, exchange traded funds combine the best features of mutual funds and stocks. First off, the most popular ETFs track a diversified group of stocks just like a mutual fund. So, the performance of an ETF is tied to an entire basket of stocks. And secondly, ETFs trade during the day just like a stock. So, ETFs are essentially diversified funds that trade like stocks. But that s not all ETFs also come with unparalleled transparency, lower fees, and tax benefits that you can t get in mutual funds. These extra perks really set ETFs apart from the competition. In short, ETFs give you a simple, low cost, and flexible way to execute just about any investment strategy. Now let s dig into my top 3 ETF trades for 2017

4 ETF Trade #1: Currency Hedged Europe ETF "Competition within funds industry to launch currency hedged exchange traded funds is getting white hot. Barrons August 2015 Investing in stocks outside of the US is a great way to diversify and find opportunities to grow your portfolio. However, the returns US investors make on their overseas investments can be impacted by fluctuations in currency exchange rates. When the US Dollar is strengthening against other currencies, it is a headwind for their foreign investments. In short, the returns you make on foreign investments are worth less when they are converted back into dollars. As you know, central banks around the globe have used loose monetary policy to pump up the global economy since the financial crisis in Just about every major economy from developed economies like the US, Europe, United Kingdom, Japan, and even developing markets like China have used or are still using unusual monetary policy to spark economic growth. Now the US is among the first to embark on a return to a normal monetary policy. But here s the thing the rest of the world is still moving in the other direction. As a result, the US Dollar is racing higher relative to other currencies. These currency fluctuations are a headwind for US investors foreign stock investments. A currency-hedged strategy seeks to provide exposure to these stocks while removing or hedging out the headwinds from foreign currency fluctuations.

5 The WisdomTree Europe Hedged Equity ETF (HEDJ) is the most popular currency-hedged ETF in terms of assets under management. HEDJ provide exposure to European equities while at the same time neutralizing exposure to fluctuations between the Euro and the U.S. dollar. It currently holds 129 stocks and has an expense ratio of 0.58%. Now, let s look at another trade idea ETF Trade #2: Airlines Flying High "The industry has been historically turbulent, but those past problems may present opportunities today." Kiplingers Airlines and other aviation stocks don t have a great track record with investors. The industry has been seen many failures and bankruptcies over the years. But those days are ancient history Today s aviation industry is a model of efficiency and profitability. Airlines have streamlined operations and have strict fuel efficiency standards that have done wonders for their balance sheets. It has helped fuel some big gains in airline valuations. And there s more to come After years of consolidations and often times painful restructuring the airline industry is stronger than ever.

6 A combination of fewer airlines, more seats on planes, and add-ons such as checked baggage, priority boarding, Wi-Fi, on-board meals, and extra leg room have sent free cash flow soaring to all-time highs. And the airline industry won t stop finding few ways to add fees. These additional fees are annoying for travelers that were used to getting many of these things for free. But there s no doubt about it, airlines have become masters of squeezing money out of their customers at every turn. Luckily for investors, airlines are also mastering how to put this money to work. They re striking a balance between investing in their future and rewarding shareholders. We re seeing many airlines upgrade to more fuel efficient planes. This helps set the stage for long-term profitable growth no matter what happens to fuel prices. At the same time airlines are increasing share buybacks and dividend payments. In short, the airline industry is one of a few industries that is growing the right way. In 2017 the US Global Jets ETF $JETS should be a huge beneficiary of the growth and success of the airline industry. JETS tracks an index of companies associated with the commercial airline industry. It allocates with an 80% of the fund to domestic companies and the other 20% to international stocks. Now for our final trade idea

7 ETF Trade #3: Focus On Real Growth "Non Financial companies in the S&P 500 now have $1.73 trillion in cash." Moody s Investor Services 2015 I don t like the way the biggest and richest companies in the US are spending their money. Most companies are choosing to skip investment in their future in order to get a short term boost to earnings per share. Here s how it works... Companies repurchase shares of their own stock in the open market. This reduces the number of shares outstanding. The result is a boost to EPS because the earnings are spread over fewer shares. Shockingly, companies in the S&P 500 have spent more on buybacks and dividends than they reported in earnings. Let that sink in for a moment Needless to say, this can t continue forever. At some point these companies need to figure how to turn cash into growth and future profits. At the same time these companies are also hoarding record amounts of cash. The cash balance at non-financial companies has ballooned to more than $1.7 trillion. I believe that large companies that fail to invest in future opportunities and buy investors silence with stock buybacks and dividend hikes are poor investments.

8 Investors that want to invest in stocks with bigger opportunities should focus on companies that are willing to invest in the future. I m really intrigued by this new growth ETF The Innovator IBD 50 Fund $FFTY. This ETF is based on the Investor s Business Daily (IBD) top 50 growth stocks. FFTY is an actively managed ETF. It s rebalanced on a weekly basis. It s designed to exit stocks that fall out of the top 50 and buy those that move into the top 50. And it will always rebalance and hold the 50 best growth stocks based on IBD s CAN SLIM formula. Take a look at adding FFTY to your portfolio. Its unique holdings and focus on growth stocks could make it one of the top performing growth ETFs in ETFs You Shouldn t Own So, we ve talked about three ETFs we believe should lead the markets higher in But as any seasoned investor knows, it s not always about the investments you make sometimes it s avoiding the bad investment that has the biggest impact on your investing success. In fact, there are some ETFs that you shouldn t own not because of any macroeconomic reason, trend, story, or anything like that. I m talking about avoiding ETFs at risk of being closed down.

9 You see, ETF providers take a big gamble every time they launch a new ETF. Until there s $20 to $100 million in assets in the ETF it s not profitable for them (depending on the fee structure). If an ETF doesn t catch on within the first 6 months to a year there s a good chance that the ETF will be closed down. And you don t want to be stuck in a fund that closes. You will get your money back but you ll take a tax hit and your money could be tied up for a period of time while the ETF is liquidated. You re better off just avoiding these 9 ETFs at risk of being shut down in AdvisorShares Athena High Dividend (DIVI) 2. Market Vectors Indian Rupee/USD ETN (INR) 3. DB Agriculture Double Short ETN (AGA) 4. WisdomTree Japan Quality Dividend Growth (JDG) 5. JPMorgan Diversified Return Europe Currency Hedged (JPEH) 6. Deutche x trackers MSCI Australia Hedged (DBAU) 7. ELEMENTS MLCX Biofuels ETN (FUE) 8. LocalShares Nashville Area ETF (NASH) 9. QuantShares US Market Neutral Momentum (MOM) A Final Word I ve given you a lot of information in this report. There s no guarantee every investment I ve discussed is right for you.

10 But it s easy to see ETFs are a simple and convenient way to invest in India s economic growth, generate a monthly income with an actively managed fixed income ETF, or profit from the resurgence of small-cap stocks. And I ve even given you a list of 9 ETFs to avoid that are at risk of closure due to lack of investor demand. Remember this The first step toward success is taken when you refuse to be a captive of the environment in which you first find yourself. Mark Caine Now it s up to you to make it happen. Best of luck in 2017, I wish you success in all of your endeavors. Sincerely, Corey Williams, Senior ETF Strategist ETF Trading Research

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