Top ETF Picks For Second Half Of 2017

A lot has happened in the markets in the first half of 2017. Now, as we enter the second half of the year, we asked two ETF strategists what pockets of the market they like, and what assets they are exiting—all through an ETF lens.

Their best ideas are as diverse as the opportunity set in the ETF market today. Here’s what they had to say.

Deborah Frame, President & Chief Investment Officer, Canada-based Frame Global Asset Management:

Looking to the second half of 2017, we’ve shifted more of our asset allocation to Europe with the iShares Core MSCI Europe ETF (IEUR), away from U.S. equities. In the fixed-income space, we’ve shifted from short to longer-duration Treasuries, adding the iShares 20+ Year Treasury Bond ETF (TLT). 

We rebalanced the portfolio models in June to reflect our continued “Stagnation Outlook.” Across all models, we eliminated exposure to U.S. small-cap equity. We maintained the Canadian and European Equity exposure as well as the long-term U.S. Treasury bond.

As a result of a lack of evidence of inflation in the U.S., financial conditions appear more accommodative since late last year, in spite of the Fed hikes. Our shift in the direction of long bonds is a reflection of our view that this will not be reversing in the near term.

Mike Venuto, Co-founder & Chief Investment Officer, New York-based Toroso Investments:

We continue to invest in growth themes at reasonable fundamentals—ETFs like the Direxion All Cap Insider Sentiment Shares (KNOW), the Emerging Markets Internet & Ecommerce ETF (EMQQ) and the Oppenheimer Mid Cap Revenue ETF (RWK). We look to avoid the concentration in the overvalued growth names that’ve stretched market valuations. 

We’re constantly evaluating new global growth themes like the Wearable Technology (WEAR) or the Global X Internet of Things (SNSR) or the Amplify Online Retail (IBUY). The key for us is reconciling the belief in the theme with the purity of the index exposure and reasonable market fundamentals.

Another concept we’ve liked for many years is characteristic-based indexes that use nontraditional financial data like insider-buying KNOW or spin-off [the Guggenheim S&P Spin-Off ETF (CSD)] to create active share and potentially alpha.

There are two new consumer-oriented ETFs in this space from Exponential ETFs that we find interesting: the American Customer Satisfaction Core Alpha ETF (ASCI), which focuses on customer satisfaction, and the Brand Value ETF (BVAL), which equal-weights unrealized brand value. 

Our largest challenge is finding high-income solutions. We have described many times our barbell approach to income investing, where we are combining high-income ETPs with safety assets. Many of these ETFs have appreciated and now produce less income. We are constantly screening the universe of ETPs that produce the most income per unit of volatility.

Stephen Blumenthal, Chairman & CEO, King of Prussia, Pa.-based CMG Capital Management Group:

Overall, the trend for equities remains bullish, despite the overvalued and aged nature of the current cyclical bull market that began in 2009.

U.S. large-cap equites remain strong. We are seeing strong relative strength price leadership in the iShares US Medical Devices ETF (IHI) and the SPDR S&P Homebuilders ETF (XHB), a recent new addition to our portfolio.

We see strong relative strength in emerging markets, and fundamentally we particularly like India for a number of reasons—great demographics, a well-educated population, low overall debt and a strong cultural work ethic. In our CMG Tactical Equity strategy, we are long the iShares MSCI Spain Capped ETF (EWP), the iShares MSCI Israel Capped ETF (EIS), the iShares MSCI Finland Capped ETF (EFNL), the iShares MSCI Taiwan Capped ETF (EWT) and the iShares MSCI Malaysia ETF (EWM).

We believe interest rates are heading lower and will remain lower for longer, and that another recession is just around the corner. There are no evident signs of a recession just yet in our models, but it’s probable in 2018.

This favors long Treasury bond exposure—ETFs such as the iShares 20+ Year Treasury Bond ETF (TLT) and the Vanguard Extended Duration Treasury ETF (EDV). Our tactical fixed-income model is currently long TLT and the iShares National Muni Bond ETF (MUB). The strategy is tactical in nature, so positioning may change.

We believe the high-yield bond market is far overvalued and we have concerns. Thus, we’d generally avoid the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG).

Charts courtesy of StockCharts.com

Contact Cinthia Murphy at [email protected]