8 Great Investing Themes for 2017

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With closing out the first quarter of 2017, it’s clear that international markets are beating U.S. markets in terms of performance. The U.S. rose 2.7% in the first quarter, while European markets have seen a rise of 8.8% during the same period. China has seen a rise of 10.8%. The international markets are out-performing the U.S., and I think the trend will continue.

There’s a lot going on around the world in 2017. Much has changed in the investment world from the election. After reviewing previous investing themes in the context of new circumstances, I see eight great investing themes emerging for 2017.

In general, we are looking to get in early on trends. If we can find markets or sectors that have had a correction, then we can get in cheap. Moreover, if we can find markets or sectors that are now back on an uptrend, we can get in early. In other words, our goal is to get in early by identifying cheap and up-trending investment themes.

China

China has many good options. China is a country with an emerging markets, and all of global growth is mainly happening in the emerging markets. China is growing at a pace of about 5.5%, which is three times greater than the United States. The Chinese economy is shifting from an export-driven economy to a Chinese consumer economy, and the economy will continue to shift. China has also rebounded from the lows experienced in the index of stocks that fell greatly over the past twelve months. This rebounded uptrend makes it a pretty good time to think about investing in Chinese stocks.

One of the big reasons that it is a good time to invest in China, is that it’s a shares are being added to the MSCI Emerging Markets Index as they buy more and more Chinese shares to keep percentages accurate within the index. This expansion will bring $1 trillion of investment into Chinese companies just because of the increased percentages for China in the index. You can find a general index Exchange Traded Fund (ETF) for China, or you can look for an index that focuses on Chinese “A-shares,” which is the direction that the bulk of the increased percentages are headed. Just Google, “China Index ETF”.

Japan

Another interesting investment approach now is in Japan. Japan is still manipulating their monetary policy through quantitative easing and a negative interest rate policy (NIRP). As they grow their monetary base, they weaken their currency and that makes export-driven companies sell their products easier at lower prices. I suspect Japanese stocks will rise faster than stocks here in the U.S. for 2017, so I think a good way to invest globally right now is in Japan. I would consider using a currency-hedged ETF. Just Google, “Japan Index ETF Currency-hedged”.

Europe

Like Japan, the continent of Europe is still actively increasing the monetary supply by implementing quantitative easing. The EU is buying bonds at a rapid clip, estimated at about 80 billion Euros per month. This rapid expansion makes it a good opportunity to invest internationally for the same reason as in Japan. As their currency weakens it is easier to sell exports and improve the earnings of European companies. Because of this, I would consider investing in Europe. I think this is currently one of the best ways to invest in an internationally developed market. I would look to use a currency-hedged ETF because they are specifically trying to drive down their own currency through their monetary policy.

Protectionism

Another investment theme for 2017 is right here at home with protectionism. Protectionism seems to be a guiding point for U.S. policy in the U.S. government specifically the president. If you are going to have protectionist policies and the best way to play that, is by investing in U.S. small-cap stocks, the best way to play small-cap stocks is through the index ETF.

The reason why small caps are the best way to play protectionism is they are not global companies, typically. Large-cap companies are global and therefore they will not typically be able to play into the protectionist theme. Small-cap companies will focus on doing business within the U.S.

Global Central Banks Trade— Precious Metals

Since many global central banks are still in a manipulative mode, this creates a good opportunity for precious metals. As currencies weaken, so does their purchasing power. Last year gold was up 8% and silver was up 14.5%. Both were up more than the stock market in 2016. I think we will see similar returns for 2017. I would just buy the precious metals via ETFs, not the miners, but if you want to employ leverage to your trade gold miner stocks move more than the underlying commodity.

Best of Both Worlds Trade — Value & Growth

Another great investment theme for 2017 is playing big-cap technology companies. This is one of the only sectors that have good growth and good value companies like Cisco, Microsoft, IBM, Intel, Oracle and IBM. These companies have relatively good valuations and are growing in the mid-teens. One of the best indicators to check for opportunity is the PEG Ratio (Price to Earnings to Growth). You can find that metric under a stock profile in Yahoo! Finance or Morningstar. One of the best ways to play big-cap technology is through a sector spider or sector-based index ETF.

Rising Interest Rates Trade

Another good investment theme for 2017 is within the U.S. financials. Since we are beginning a time of rising interest rates, many U.S. financial companies will be benefiting as the spread widens between how much it costs them to borrow money versus how much they can make. That spread improves as long-term interest rates rise. There are two good sub-sectors to consider within the rising interest rate environment. The first is standard money center banks and regional banks. The second is insurance companies, specifically property and casualty insurance companies. Check out the financial sector ETF, regional banks ETF or the insurance index ETF.

Reflation Trade

The last recommendation for an investment team in 2017 is the reflation trade. As we see global growth, we will see a rise in expected inflation. Some of the best ways to play the rising reflationary trade would be base metals and precious metals. Some of the best ways to take advantage of this theme would be investing in steel or copper. You can use commodity-focused ETFs or buy one of the major steel companies.

Conclusion

Each of these eight investment themes show value and promise based on the environment in 2017. Research and review each of these potential options and see if they might work for you. If you want our specific investment recommendations for specific ETFs within each investing theme, we will provide them later to our fans.

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Disclaimer — The above references an opinion and is for information purposes only. It is not intended to be investment advice.