As 2018 nears, it’s a good time to re-evaluate portfolio holdings, and consider where best to allocate assets.
We asked some ETF strategists for their favorite ETF picks going into 2018. Here’s where they see opportunity:
Gary Stringer, president/chief investment officer, Stringer Asset Management
Going into 2018, we’re emphasizing areas that have lagged in 2017: U.S. small- and midcaps, as well as value. Global economic growth is stronger than expected, and we think that trend will continue, so we’re focusing are areas that have lagged but may soon lead. With the fee compression within the ETF space, we can access these areas on the cheap.
Ben Lavine, chief investment officer, 3D Asset Management
- iShares Edge MSCI Intl Value Factor ETF (IVLU)
- iShares MSCI Emerging Markets ETF (EEM)
- iShares MSCI Emerging Markets Small Cap ETF (EEMS)
- First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS)
Cyclically sensitive assets such as global value (e.g., industrials and financials) and commodities have both lagged global growth and “higher quality” assets over the last five to seven years. If we’re in the late stages of an expansionary cycle, we would expect higher inflation to be priced into financial assets, such as a steepening in global yield curves where long rates rise faster than short rates.
From a broad asset allocation viewpoint, investors may want to consider adding to global ex-U.S. value, whether through developed markets or more broadly through emerging markets, and especially small-cap emerging markets through either plain-vanilla or smart-beta ETFs.
Deborah Frame, president/chief investment officer, Frame Global Asset Management
We are currently positioned for growth for the first quarter of 2018, but cautious of a reversion back to stagnation in the later part of 2018. The caution is dominated by themes of U.S. protectionism and geopolitics that will have possible impact on U.S. growth.
While we expect three more rate hikes in 2018, economies outside of the U.S. continue to be more accommodative, and that will drive foreign capital to the U.S. The results of tax reform will take some time to filter through to the economy. Only then will we see if it has led to economic growth and higher tax revenues being generated.
One area we like is the Asia-Pacific region, where the outlook remains robust and recent data point to a pickup in momentum. Macroeconomic policies should continue to support growth.
Clayton Fresk, portfolio manager, Stadion Money Management
One of the biggest ETF picks for 2018 is still shrouded in mystery. With the pending reclassification of sectors and industries in 2018, the resulting effect on ETFs could prove very interesting.
Technology, consumer discretionary and the new communication services sector could all see a decent overhaul, particularly as it pertains to the FANG [Facebook, Apple, Netflix, Google] stocks. But since the final constituency of the new sector has not been finalized, the mystery remains.
The new communication services sector is intriguing. But until the industry sees how this change shakes out and what the resulting ETF exposure looks like, it’s difficult to pinpoint how exactly this play will turn out.