Donald Trump’s win as the U.S. President and the most sought-after OPEC output deal has actually set the tone of 2017 investing. Many are bullish on the prospect of oil price this year though rising U.S. supplies can anytime thwart the winning momentum in the oil patch. However, Trump-backed hopes are still in fine fettle.
Added to these, there are plenty of other events – across asset class and regions – that could prove to be game-changers this year. In view of this, we intend to highlight a few ETF trends that are likely to be prevalent in 2017:
Stocks to Be Bullish Overall
The year can be attributed to stocks. The first and foremost reason for it is an end to earnings recession. Earnings growth entered into the positive territory in Q3 of 2016 following five consecutive quarters of decline. For the upcoming Q4 earnings season, the S&P 500 is expected to score 3.3% earnings growth on 4.1% revenue growth.
Earnings for Q1 of 2017 are expected to surge 10.3% for the S&P 500 on 7.5% higher revenues, as per the Earnings Trends issued on January 4, 2017. The earnings growth trend is expected to stay firm even for Q2, Q3 and Q4 of this year with an expectation of 9.8%, 8.2% and 12.5% on revenue growth of 5.7%, 5.5% and 4.8%.
Along with earnings recovery, stabilization in the oil patch after a prolonged rout and a Trump-induced fiscal boost along with lower taxes should augur well for stocks this year. Still, with markets appearing overvalued by some measure and the President-elect Trump yet to roll out promised measures, cautious investors with a long-term notion can opt for value ETFs over growth. Investors should also note that a stronger U.S. dollar is likely to take some shine off the S&P 500 index as the components are heavily exposed to foreign currencies.
Investors should note that SPDR S&P 500 Value ETF SPYV has a positive weighted alpha of 23.00 while SPDR S&P 500 Growth ETF SPYG has it at positive 13.90. This indicates a higher growth potential in SPYV.
Currency-Hedged Foreign ETFs to Rule
The U.S. dollar is presently at a multi-year high on bets over faster Fed policy tightening and an improving U.S. economy. On the other hand, foreign economies are also gaining momentum. Business and consumer sentiments in the European Union are at about six-year highs. Business conditions in the Japanese economy are also improving.
An upside is more likely for European and Japanese stocks given the ultra-easy monetary policy over there, which will keep their currencies low against a soaring greenback and boost those economies.
As a result, currency-hedged ETFs like WisdomTree Japan Hedged SmallCap Equity ETF DXJS, WisdomTree Japan Hedged Quality Dividend Growth ETF JHDG and O’Shares FTSE Europe Quality Dividend Hedged ETF OEUH will likely rule the year ahead.
More Factor-Based ETFs to Come On Line
Factor-based products have been quite a trend in 2016 as the fashion for plain vanilla ETFs is gone. Issuers are coming up with a more striking investment objective which can create a winning combination in the present investing environment. All in all, smart beta and multifactor ETFs will likely carry forward the legacy of the ETF world. An example of recently launched factor-based ETFs is ALPS Dorsey Wright Sector Momentum ETF SWIN.
More Players to Enter ETF Industry
Be it big banking giants or hedge fund managers, players are increasingly entering the ETF industry. We have already have seen J.P. Morgan and Goldman venturing into the ETF world and now Wells Fargo is also eyeing the space with its first-ever multi-factor ETF. Saba Capital Management, a New York-based hedge fund manager, is also planning to foray into the ETF space with an ETF related to closed-end funds.
Expense Ratio Cut
With rising competition among issuers for market share, expense ratios are increasingly being slashed. So long, Charles Schwab and Vanguard ruled the world of low-cost ETFs. But last year, BlackRock and Fidelity enacted steep fee cuts for several of their products. A new set of rules under the Department of Labor’s “fiduciary standard,” which asked advisors to give precedence to their client’s interest over their own also played a role in this burgeoning trend.
For example, BlackRock lowered fees for its S&P 500 tracking ETF, iShares Core S&P 500 IVV, from 0.07% to 0.04%. The fee cut made IVV less expensive than other popular ETFs in its domain. Even a relatively new-comer like Hartford Funds, which launched Lattice Strategies and its ETF operations earlier in 2016, announced that it will lower the expense ratio on four of its smart-beta funds effective January 1.
Bitcoin ETF to Hit the Market?
Even if we are yet to have a bitcoin ETF, one is expected to hit the market in 2017. Winklevoss Bitcoin Trust has filed for one to make it easy for investors to bet on this soaring digital currency. As per CNBC, “bitcoin is a very volatile asset” but doesn’t have a strong correlation with other classes. Bitcoin’s value beat the $900 mark in late December for the first time since February 2014.
India’s demonetization also gave a boost to bitcoin trading volumes. Moreover, trading volumes in China have been solid with the government taking proactive measures against illegal money transfer. With this, investors expect to see an approval of the first bitcoin ETF in 2017.