3 ETFs To Own In 2016…

3 ETFs To Own In 2016... And 9 ETFs You Shouldn't

"ETFs have assumed the role of preferred investment vehicle among advisers, 81% of financial advisers surveyed are currently using or recommending ETFs with their clients."

- Journal of Financial Planning and the FPA Research and Practice Institute | 2015

I've been writing about the benefits Exchange Traded Funds (ETFs) since 2009. During that time I've witnessed a dramatic transformation in the way independent investors manage their money.

ETFs have played a critical role in this transformation. Simply put, ETFs opened the door to many asset classes and investment strategies that were once the exclusive playground of big money managers and the super-rich.

Today, there are around 1,850 different ETFs with exposure to everything for stocks, bonds, commodities, currencies, and everything in-between.

The biggest developments over the last few years have to do with ETFs that track asset classes like gold and other commodities as well as foreign stocks, bonds, and currencies. These ETFs make these asset classes easily accessible to independent investors.

And there have been several ETFs launched that use investment strategies like sector rotation, currency-hedged, long-short, quant, and guru

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following. These strategies were beyond the reach of most investors before ETFs made it as simple as buying and selling a stock.

Why ETFs?

There are lots of reasons to like ETFs. But it boils down to one thing...

ETFs are tools for investors to make money. And these low-cost tools can put more money in your pocket. Put simply, exchange traded funds combine the best features of mutual funds and stocks.

First off, the most popular ETFs track a diversified group of stocks just like a mutual fund. So, the performance of an ETF is tied to an entire basket of stocks.

And secondly, ETFs trade during the day just like a stock.

So, ETFs are essentially diversified funds that trade like stocks.

But that's not all...

ETFs also come with unparalleled transparency, lower fees, and tax benefits that you can't get in mutual funds. These extra perks really set ETFs apart from the competition.

In short, ETFs give you a simple, low cost, and flexible way to execute just about any investment strategy.

Now let's dig into my top 3 ETF trades for 2017...

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ETF Trade #1: CurrencyHedged Europe ETF

"Competition within funds industry to launch currencyhedged exchangetraded funds is getting white hot."

Barrons | August 2015

Investing in stocks outside of the US is a great way to diversify and find opportunities to grow your portfolio.

However, the returns US investors make on their overseas investments can be impacted by fluctuations in currency exchange rates.

When the US Dollar is strengthening against other currencies, it is a headwind for their foreign investments. In short, the returns you make on foreign investments are worth less when they are converted back into dollars.

As you know, central banks around the globe have used loose monetary policy to pump up the global economy since the financial crisis in 2008.

Just about every major economy from developed economies like the US, Europe, United Kingdom, Japan, and even developing markets like China have used or are still using unusual monetary policy to spark economic growth.

Now the US is among the first to embark on a return to a normal monetary policy. But here's the thing... the rest of the world is still moving in the other direction.

As a result, the US Dollar is racing higher relative to other currencies.

These currency fluctuations are a headwind for US investors' foreign stock investments. A currency-hedged strategy seeks to provide exposure to these stocks while removing or hedging out the headwinds from foreign currency fluctuations.

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The WisdomTree Europe Hedged Equity ETF (HEDJ) is the most popular currency-hedged ETF in terms of assets under management. HEDJ provide exposure to European equities while at the same time neutralizing exposure to fluctuations between the Euro and the U.S. dollar. It currently holds 129 stocks and has an expense ratio of 0.58%. Now, let's look at another trade idea...

ETF Trade #2: Airlines Flying High

"The industry has been historically turbulent, but those past problems may present opportunities today."

Kiplingers |

Airlines and other aviation stocks don't have a great track record with investors. The industry has been seen many failures and bankruptcies over the years.

But those days are ancient history...

Today's aviation industry is a model of efficiency and profitability. Airlines have streamlined operations and have strict fuel efficiency standards that have done wonders for their balance sheets. It has helped fuel some big gains in airline valuations.

And there's more to come...

After years of consolidations and often times painful restructuring the airline industry is stronger than ever.

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