Putting Up The Tree With Top ETFs Of 2017

Christmas isn’t Christmas without a verdant tree. While the evergreen never fails to bring in cheer to the most lonesome of hearts, we decided to do something very different this year – build a tree with the choicest of ETFs this season.

A Christmas Tree of ETFs

Let’s build the base first, which is the most valuable of all for investors, and of course where all the gifts are to be found. And nothing’s more fitting than SPDR Dow Jones Industrial Average (SI:SPDR) ETF DIA, which tracks the Dow Jones Industrial Average, to give a solid foundation to our tree. The Dow Jones has moved up 5,000 points this year — the biggest annual gain in its history — and is moving closer to another major milestone of 25,000. Additionally, the index has logged the 70th record close so far this year, representing the highest-ever number of record closes in a calendar year. As such, DIA has returned nearly 25% this year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Top Investing Areas of 2017 & Their Top ETFs).

Tax reform has added to more strength to the second-largest bull market and is expected to be the key catalyst to drive the stocks higher in 2018. A massive $1.4-trillion tax cut will create an economic surge, boosting job growth and reflation trade. It will further accelerate earnings, leading to increased dividend and buyback activities. Additionally, the tax repatriation will allow companies to bring offshore cash back home, paving the way for increased mergers and acquisitions.

If we talk about sectors, banks and retail will be the biggest beneficiaries of the tax cut to 21% from 35% as they have the highest effective tax rate. Therefore, an ETF from these two sectors could be the best option to deck up our Christmas tree. In particular, SPDR S&P Regional Banking ETF (CO:KRE) and VanEck Vectors Retail ETF (V:RTH) could be intriguing. Both funds have a Zacks ETF Rank #3 (Hold) and have gained 6.8% and 20.6%, respectively, this year. So they form the fronds and leaves of our ETF tree.

For the top layer, we have chosen the small cap iShares Russell 2000 Growth ETF IWO as it is backed by the dual tailwinds of accelerating economic growth and tax cut plan. Small companies pay huge taxes in America and a tax cut could be a big boon to these companies. These pint-sized stocks generate most of their revenues from the domestic market and generally outperform on improving American economic health. IWO has a Zacks ETF Rank #2 and has delivered strong returns of about 22% this year (read: ETFs to Bet on the Final Tax Bill: What Hot, What's Not).

At the very top is the star ETF of 2017 — ARK Web x.0 ETF ARKW. The ETF is gaining on the bitcoin boom as well as technology surge. It is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund has soared more than 91% this year.

With the structure ready, we now have to decorate the tree with bells, candies and lights. While most of the ETFs could be part of this beautification, we have chosen those that have a top Zacks ETF Rank or are currently hot in the market. Notably, Schwab U.S. Dividend Equity ETF SCHD, offering exposure to the high dividend-yielding U.S. companies that have a record of consistent dividend payments, will add to the glitter and shine. The product has climbed 17.6% this year and has a Zacks ETF Rank #2, suggesting its continued outperformance.

The best ETF that could nicely fit the candy decor is WisdomTree China ex-State-Owned Enterprises Fund CXSE, which is up about 75% this year. The strength came from companies that belong to a new and developed China (that has stepped up efforts to upgrade manufacturing, and research and development) rather than the traditional government-run companies such as banks, energy and telecom firms. The fund offers exposure to targeted Chinese stocks that are not state-owned enterprises and has a Zacks ETF Rank #2 (read: Be Thankful to These China ETFs This Year).

Now, to light up the tree, let’s add iShares PHLX Semiconductor ETF SOXX that will continue to brighten investors’ portfolio in 2018. The fund has surged nearly 42% this year and has a Zacks ETF Rank #1 (Strong Buy). Being a cyclical sector, this semiconductor ETF tends to move higher with market rallies. New areas such as autonomous cars, cloud computing, gaming, wearables, VR headsets, drones, virtual reality devices, Internet of Things (IoT) and artificial intelligence are fueling exceptional growth. Additionally, semiconductor ETFs are gaining from rising demand of cryptocurrency mining, which needs the usage of semiconductors (read: Bitcoin ETFs Are Back After Futures Launch).

The Christmas tree of ETF is now ready for investors. May it spread cheer with the jingle of Santa’s bell.

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